Today, I am looking at giant cigarette manufacturer British American Tobacco (LSE: BATS) (NYSE: BTI.US), and tallying up whether to add the stock to my own personal portfolio.
Emerging markets light up tobacco maker
If, like me, you love companies with excellent exposure to developing markets, then you could do worse than pick British American Tobacco. The firm announced last week that revenues rose 4% in the first six months of 2013 to £7.7bn, on a constant currency basis. This helped to drive adjusted profit 6% higher to £3bn.
On a constant currency basis, adjusted operating profit from the Eastern Europe, the Middle East and Africa (EEMEA) region advanced 13%, while from Asia-Pacific this rose 9% during the period. In comparison, profit from Western Europe rose just 0.2%.
And British American Tobacco believes that these areas provide the key to future growth. Its purchases in recent years include giant Colombian cigarette manufacturer Protabaco and Turkey’s Tekel. And the firm has shown no signs of averting its focus from these exciting new geographies, having pushed massive sums into marketing activities from Russia to Argentina, South Korea and Indonesia last year.
It is correct that the company has seen cigarette demand stall in a number of its key markets in both emerging and established regions. Total tobacco sales fell to 346bn in January-June, British American Tobacco announced.
However, the strength of its critical ‘Global Drive Brands’ — Dunhill, Lucky Strike, Kent and Pall Mall — is helping the company to make headway in new markets as well as maintain margins through its formidable pricing power.
A resilient earnings generator
British American Tobacco has a terrific record of producing excellent earnings growth in recent years. And this is expected to continue rattling along according to Investec, which anticipates earnings per share to advance 8% in both 2013 an 2014, to 224.9p and 242.9p.
This relentless growth has delighted shareholders as dividends have rolled higher in unison, and Investec expects last year’s total payout of 134.9p to rise to 147.4p and 159.2p in 2013 and 2014 respectively. And these projected payments carry yields of 4.2% and 4.6%, comfortably beating the 3.3% FTSE 100 average.
The hot guide to other smokin’ picks
So I reckon that British American Tobacco is an excellent bet for plump rewards. And if you are looking for a whole host of other FTSE 100 winners to bolster your investment returns, I strongly recommend you check out these recommendations from veteran fund manager Neil Woodford.
Woodford — in charge of UK Equities at Invesco Perpetual — has more than 30 years’ experience in the industry, and has marked out two other fantastic cigarette plays ready to generate monumental gains.
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> Royston does not own shares in British American Tobacco.
