Uganda: Bribery Claims, Profit Warning Fail To Dampen British American Tobacco Share Rally

By Kevin Mwanza Published: December 10, 2015, 1:59 am

Shares in British American Tobacco Uganda (BATU) have continued to rise at the local bourse despite the company facing allegation of bribing officials in the East African country and issuing a profit warning on expectation that its earnings might drop  by more than a quarter this year.

Last week, a BBC investigative report claimed that the British company paid bribes to senior political figures and World Health Organization officials in East Africa to influence the outcome of an anti-smoking low in Kenya, Uganda, Burundi and Comoros Islands.

BATU then issued a profit warning on Dec. 4, indicating that its profit might drop by as much as 25 percent from the previous year, dragged down by reduced tobacco leaf shipments this year compared to 2014.

The company discontinued its leaf operation and sold it to Alliance One International in what analysts have termed as a business scale down in the country to concentrate on marketing and distribution of its cigarette brands, The Observer reported.

According to an Anadolu Agency report, BATU shares jumped 15 percent on Monday even after the company issued the earnings fall forecast the previous Friday.

Shares in the British cigarette maker have rallied this year at the Uganda Securities Exchange (USE) making it the best performer on the bourse so far this year.

Salima Nakiboneka, fixed-income securities and equities analyst at Crested Capital told Anadolu Agency that the company’s generous dividend policy of distributing all its profits to shareholders was still attractive to investors.

“That makes the stock very attractive for a long-term investor may be willing to put a significant amount of money in the stock,” she said.

In 2014, the cigarette manufacturer paid out 36.8 billion Ugandan shillings ($11.2 million) in dividends, its highest amount ever.

BATU, which controls 70 percent of Uganda’s cigarette market, only has 10 percent of its issued shares listed on the USE, something that analysts say makes them scarce for prospective investors pushing the price higher as demand exceed supply.

“The illiquidity of the stock tends to play a major role in its rise in price,” Nakiboneka said, adding that a new strategy by BATU to improve product distribution efficiency will help boost the stock going forward.

The company is restructuring around its core business of cigarette manufacturing and distribution. Last year the company closed its leaf-growing and threshing site in Uganda, even though it had been the source of exceptional profit.

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