- Tighter EU border controls damped illicit sales, analyst says
- Shares rise as much as 2.6%, extending this year's rally
British American Tobacco Plc, the maker of Lucky Strike cigarettes, reported a surge in cigarette sales in western Europe that helped first-quarter revenue beat analysts’ estimates.
The 13 percent jump in the number of cigarettes BAT sold in the region was driven by a drop in illicit tobacco sales, which had been rising amid the European refugee crisis, according to Philip Gorham, an analyst at Morningstar. The reintroduction of national border checks this year and a European Union accord with Turkey has helped stem the influx of people from the Middle East and Africa.
“Tighter border controls both on the perimeter and within the EU have made smuggling slightly more difficult,” Gorham said by e-mail.
The measures helped BAT buck the long-term trend of dwindling cigarette consumption and offset adverse currency movements that have hampered its profit growth. Revenue rose 7.5 percent at constant exchange rates, beating the estimate of analysts surveyed by Bloomberg. The shares rose as much as 2.6 percent in London.
“The volume growth is a really impressive start to the year,” Duncan Fox, an analyst at Bloomberg Intelligence, said by phone. “They’ve got the pricing strategy on the five key brands right and it’s allowing them to gain market share.”
BAT shares have rallied about 10 percent this year amid hopes that a strengthening of the Brazilian real and the Russian ruble will ease strains on the company’s profit. The company said it expects “good earnings growth” in 2016, excluding the impact of currency swings, with gains weighted to the second half of the year.
While the effect of buying tobacco in dollars and selling in many emerging markets will hurt profit by about 7 percent, the company also anticipates that translating profits back into sterling will help lift full-year earnings by about 3 percent.
The guidance on currencies is better than expected, and coupled with the company’s strong first-quarter sales, analysts’ estimates for full-year earnings per share are likely to rise by between 2 percent and 3 percent, James Bushnell, an analyst at Exane BNP Paribas, said by e-mail.