Generous dividend endears BAT to investors

  • Business
  • Saturday, 11 Jan 2003


British American Tobacco (M) Bhd (BAT) is a leading favourite with fund managers and long-term investors alike. 

One of the most endearing factors for the loyal support is BAT’s record of generous declaration of dividends. 

If one had bought 1,000 shares of BAT, formerly known as Rothmans of Pall Mall (M) Bhd, on the first trading day of 1990, paying RM9,250 for the shares, one's investment would be worth RM35,500 as at Dec 31, 2002, almost four times the initial investment. 

In addition, the dividends from just that one lot would have totalled RM23,764. 

A look at its record of dividend payouts shows that although the amount varied through the years, the cigarette manufacturer had bumped up its dividends from 1994, when it paid out RM3.79 per share compared with 34 sen in the previous year. 

Since then BAT has been paying dividends ranging from RM1.35 to RM3.22 per share. 

On a cash consideration, without taking into account the time value of money, one's investment is now worth RM59,264 (dividends received and share price appreciation). 

In November 1999, after the RM769.5mil cash merger of Malaysian Tobacco Company Bhd (MTC) and Rothmans of Pall Mall, the company was renamed British American Tobacco. 

The Rothmans and BAT group of companies then signed trademark agreements to continue manufacturing and marketing BAT brands made and sold by MTC. 

The brands under MTC include Benson & Hedges, Kent, State Express 555, John Player Gold Leaf and Lucky Strike; while Rothmans’ existing portfolio comprises Rothmans, Dunhill, Perilly’s and Peter Stuyvesant

BAT made two bonds issues worth a total of RM750mil to finance the acquisition: the first a RM300mil five-year redeemable unsecured bond with a coupon of 7.1%, and the second RM450mil bonds with a coupon of 7.9%. 

For the financial year ended December 2000 – the first year showing the full impact of the acquisition – BAT’s revenue jumped 36% to RM2.77bil from RM2.04bil, while its pre-tax profit surged 47% to RM701mil from RM476mil. 

In the following financial year ended Dec 31, 2001, BAT’s revenue climbed to RM3.01bil, an 8% rise year-on-year, and pre-tax profit rose 20% to RM840.3mil. 

The merger also saw the consolidation of the integration process at its plants in Shah Alam and Petaling Jaya.  

At end-2001, BAT’s annual production capacity was 25 billion sticks. 

The domestic market consumes about 70% of its output, and the rest goes to the export markets – Vietnam, Hong Kong, China, Brunei as well as the duty-free market. 

Based on Multex Global estimates, which polled 24 research houses, 17 analysts recommended a “buy'' or “outperform'', with the rest calling for a “hold''. 

The consensus estimate for BAT is a net profit of RM658mil for 2002, an 8.3% growth over 2001. 

A Mayban Research analyst, who has a hold recommendation on the company, says although the counter is trading at a premium to the average market price-earnings ratio (PER), it is actually near the lower end of its historical PER band. 

“BAT is a good stock to have for its dividends. One should take a longer term view,” she adds. 

Based on the company’s annual report, the largest shareholders are British American Tobacco Holdings (Malaysia) B.V. with 50% stake, and the Employees Provident Fund Board with 8.4% equity interest. 

British American Tobacco plc, the world’s second largest tobacco group, has 15% share of the global market and is the market leader in more than 50 countries. 

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