BRITISH American Tobacco saw its declining sales ease off during the first quarter, but revenues were hit by unfavourable foreign exchange rates.
The world’s second largest cigarette maker yesterday reported tobacco volumes, which measures total quantities sold, fell one per cent to 158bn sticks during the three months to the end of March – an improvement on the 2.7 per cent drop the firm saw in 2013.
The maker of Pall Mall and Lucky Strike reported revenues that fell 12 per cent at current exchange rates, but its so-called global drive brands – four crucial types of cigarettes that also includes Dunhill and Kent – saw volumes grow 6.3 per cent.
“This is a good underlying performance, underpinned by an improving trend in volume. We have grown revenue at constant rates of exchange and our pricing remains on track,” said chief executive Nicandro Durante.
“Our market share continued to grow, driven by the strength of our global drive brands. Although foreign exchange remains an issue for reported results, it is a good start to the year. I remain confident of delivering consistent growth in earnings in constant currency terms, which we will recognise with an increase in the dividend.”
Rothmans also enjoyed significant growth of 27.6 per cent driven by strong sales in Ukraine, Italy and Russia.
“British American, with its strong brand loyalty and global scale, has one of the widest economic moats in our consumer defensive coverage universe. However, with the stock trading just below our fair value estimates, we recommend investors wait for a more attractive entry point into both British American and its tobacco peers,” said Morningstar analyst Philip Gorham.