British American Tobacco share price defies odds, keeps rising

Additionally, the law prohibits the sale of cigarettes that do not have at least half of the packaging indicating a health warning on the dangers of smoking. The law also restricts all forms of public smoking as it states that Ugandans have the “right to a tobacco free environment.” BATU and other tobacco companies have in the past rejected this law – in its current form – and are widely expected to appeal once the law comes into force. Since the law was passed, BATU’s share price has continued to rise.

That would not be all. In November 2015, bribery allegations were leveled against the company by several whistleblowers. The BBC broke this story and subsequently, the Daily Monitor also secured court documents regarding a bribery case pursued by a former employee. The court documents indicate how a BATU employee facilitated the committee member in parliament to write a report that would frustrate the competition. Then in December 2015, the Financial Times also had a story indicating how an official from National Environmental Management Authority (NEMA) had been allegedly bribed by BATU officials to falsify a report on the impact of a fire at their warehouse.
These are allegations BATU officials have always denied, which is why they are defending themselves in court.
None-the-less, BATU trudged on and the share price continued to rise.

As this negative news was filtering in, BATU issued a profit warning to investors. In the warning, BATU informed investors that the Shs37b profitability witnessed at the close of 2014 could be no more because of low leaf shipments in 2015. The company whose staff was shrunk from 130 to about 36, discontinued the leaf buying and export business. More so, the company now does cigarette selling, importing and marketing.
In shutting down the leaf business, it resulted into the sale of its assets - leaf processing facility on Jinja Road - to MTN at Shs13b in 2014. On the contributors to the record profit in 2014 was the sale of the facility, according to the profit warning the company issued. The entire profit BATU was paid out to shareholders in terms of dividends. This time, the dividends will be much lower.
With the profit warning, the price went up instead of remaining muted.

Not the first time
This is not the first time the BATU counter experiences such price movements. In August 2013, BATU issued a profit warning to shareholders. It had incurred a drop in net profit from Shs8b to Shs5b in the first half of 2013. Despite the warning and drop in profits, the share price jumped from Shs2,600 to Shs4,000 in just three days. Prior to that profit warning, BATU had also lost a case in the Supreme Court where it was contesting against a demand for payment from contract farmers. The liability incurred then was Shs15b. At the time, stock brokers noted that the new investors had a “long term outlook on the prospects” of the tobacco company.

That same year, net profit was expected to drop – and it did, with net profit falling to Shs10b from Shs12b in 2012. The price jump at the time forced several investors to sell their shares, among them Crane Bank which sold its entire 4 per cent stake in the tobacco company. Property Mogul, Sudhir Ruperellia who, at the time, was the single largest individual shareholder in BATU also offloaded his 0.84 per cent in the company.

In price projected by Crested Capital, investment advisors and broker dealers, they had expected BATU’s share price to be Shs10,991 by end of December 2015. Instead, by end of December 2015, the share price was Shs22,980; way above their target.
The identity of buyers and sellers is a closely guarded secret. The new investors will be indicated in the 2015 Annual Report, which will be released at the time of the Annual General Meeting.

In the last three years, one specific investor, British THS Kingsway Fund, has been racking up shares on the BATU counter. In February 2013, they held no shares in BATU. By end of 2014, according company annual reports, they were the third largest shareholder in the tobacco company holding 8 per cent of all shares. BATU only has 10 per cent of its shares listed on the USE, the bulk of these shares are now being held by British THS Kingsway Fund.
“The number of shares up for sale is limited. With increased demand and less supply, it creates illiquidity of the stock and tends to push up the price,” Salima Nakoboneka, an analyst fixed income & equities at Crested Capital told Daily Monitor recently.

Notably, it is the retail investors who have been forced to sell their shares to institutional investors. In fact, by end mid2015, retail investors were about 1,294 down from 1,396 in 2013.
For a counter often low on activity (known as illiquid) shares worth Shs6.22b have been traded during the period between January 2015 and February12, 2016. “The attractive price is forcing several retail investors to sell their shares and make a return,” one trader on the exchange told Daily Monitor.

About BATU
In 2000, BATU resolved to become a public company leading to its listing on the USE.
In 2005, BATU’s board, then chaired by James Mulwana (RIP), made a decision to halt cigarette manufacturing in Uganda, moving the segment to Kenya with a view of ‘optimising business processes to ensure long-term sustainability’.
In 2014, BATU announced it would no longer contract farmers to grow the tobacco leaf.