Jump to full article: Business Day (za), 2009-07-16
Author: BEN TEMKIN
Intro: THE ink on yesterday’s Business Day was barely dry when I was asked this morning via e-mail, how I would rate the shares of British American Tobacco (BAT) as a long-term investment if the company was not in tobacco, but, say, in retail.
“It seems to me,” the reader goes on, “that you don’t like BAT because you’re antismoking. Your view on the share is subjective. As you keep on saying, look at its investment fundamentals. That’s why I have BAT shares.”
The reader has a point: I won’t invest in BAT because I don’t like what it does and so I won’t invest in its shares. On the face of it, though, BAT appears to be fundamentally in good shape to produce long-term bottom-line earnings per share. In addition it has an exceptionally generous dividend policy pay-out of 65% of bottom-line earnings.
Based on the figures for the financial year to December 31 2008, the company’s return on assets managed was sound. . . .
. . .
BAT’s markets will more probably expand rather than contract. Its operating assets are being streamlined. It has the resources to continue litigation related to the effects of its products.
Before you are tempted to buy the shares, however, read the nine pages on contingent liabilities and financial commitments in note 30 of the 2008 annual financial accounts.
It is a terrifying horror story, and its possible financial implications on future earnings are not quantified.
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