Growing Zim cigarette demand to spur BAT

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British American Tobacco (BAT)

Tawanda Musarurwa

HARARE – With global trends showing that cigarette consumption is set to increase, largely in medium and low income countries, Zimbabwe’s largest cigarette manufacturer could benefit from this expected outturn according to analysts.

The country’s cigarette market is estimated at 1, 845 billion sticks per year, which implies consumption of 123 cigarettes per person annually.

Says analysts at Akribos Research Services:

“BAT Zimbabwe interim results clearly indicate that the market has been growing as volumes increased 21 percent year-on-year driven by growth in all segments (Premium Brands (Dunhill) 37 percent, Value-for-Money Brands 16 percent and Low-Value- for-Money Brands (Ascot) 285 percent). 

“BAT Zimbabwe remains a leading cigarettes distributor and is well placed to benefit from the steady increase in consumption expenditure likely to emanate from the young population in Zimbabwe.

“The company’s strong cash generation, low capex, nil gearing and generous dividend policy makes the stock an attractive dividend play. BAT Zimbabwe traditionally pays out 100 percent of net earnings.

“Cigarette demand is also closely linked to gross domestic product (GDP) levels and BAT Zimbabwe’s long term growth is dependent on economic growth prospects. The tolerant attitude of Zimbabweans in general towards smoking, brand loyalty and the habit-forming nature of cigarette smoking are all key factors that help insulate the company.”

According the Tobacco Atlas, approximately 5, 7 trillion cigarettes were smoked worldwide in 2016.

“Cigarette consumption is predicted to increase in many low and medium income countries due to dynamic economic development and continued population growth. For example, the number of tobacco smokers is set to increase by 24, 0 million in Indonesia and by 7 million in Nigeria from 2015 to 2025.

“Cigarette consumption is also associated with lower socioeconomic status, even in low and medium income countries. Other vulnerable populations with high smoking prevalence include individuals from certain racial and ethnic groups,” noted the analysts.

For the half year period ended June 30, 2018 BAT recorded a 60,68 percent jump in profit-after-tax (PAT) from $4,61 million to $7,41 million on the back of increased sales volumes.

The increased volumes moved during the period under review as a result of an increase in the selling and marketing costs, which were up 19,37 percent to $2,58 million from a 2017 comparative of $2,16 million as the company aggressively marketed its brands.

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