BAT shareholder wealth falls by Sh33bn

Money Markets

The cigarette share is going at Sh720 on May 7, 2015 with the stringent tobacco regulations looming large though it has traded post-dividend since the end of March. PHOTO | FILE 

By CHARLES MWANIKI, cmwaniki@ke.nationmedia.com

In Summary

• BAT, which has 100 million issued shares now has a capitalisation of Sh72 billion down from a peak of Sh105 billion at the end of October 2014.
• Analysts say the company is likely to encounter headwinds from the new tobacco regulations due to come into force on June 5.
• BAT has however sought court intervention, arguing that some of the provisions are unlikely to succeed in addressing public health concerns and could edge out legitimate players in favour of the illicit market.

BAT shareholders have seen their worth fall by Sh33 billion since the Sh1,050 peak in October last year as the manufacturer faces a tougher regulatory regime.

The cigarette share is now going at Sh720 with the stringent tobacco regulations looming large though it has traded post-dividend since the end of March.

BAT, which has 100 million issued shares now has a capitalisation of Sh72 billion down from a peak of Sh105 billion at the end of October 2014.

BAT Plc is the largest shareholder with a 60 per cent stake, or 60 million shares, meaning the value of its holding has dropped by Sh19.8 billion to Sh43.2 billion over the period.

The top individual local shareholders Patel Chhotabhai and Taramati Shantilal have seen the value of their joint holding of 119,230 shares fall by Sh40 million over the period.

Analysts say the company is likely to encounter headwinds from the new tobacco regulations due to come into force on June 5. The guidelines stipulate display of pictogram health warnings on cigarette packages and wrappers.

READ: Cigarette packs to have graphic health warnings

Sales made in Kenya will also attract a two per cent health tax, which will go towards the Tobacco Control Fund.

“We see an increasingly rigorous regulatory regime, which is likely to pose risks in terms of higher taxes and an increasingly problematic relationship with government,” said Standard Investment Bank (SIB) analyst Eric Musau in a valuation update on BAT.

Management

“While BAT Kenya’s management has proven to be extremely adaptable to regulatory issues, we think the current initiative might be a lot more severe than it has ever been – with the Health Ministry, for the first time, pushing for health over any other priority, such as protecting the industry contribution to the economy.”

Further, Mr Musau noted excise tax to the sector could also be raised drastically in the Budget.

BAT has however sought court intervention, arguing that some of the provisions are unlikely to succeed in addressing public health concerns and could edge out legitimate players in favour of the illicit market.

The tougher operating environment is however unlikely to affect the generous dividend payout of the entire net earnings.

The high dividends was seen as a major factor in driving the demand for the BAT share—especially by local institutional investors— pushing the price above Sh1,000.