BAT exports seen increasing

However, a high-cost base that is also dollarising is expected to put pressure on margins going forward.
LOCAL research firm, IH Securities (IH) says tobacco export volumes at the Zimbabwe Stock Exchange-listed British American Tobacco (BAT) are likely to improve this year as a result of key markets like China shifting away from long-term lockdowns.

However, a high-cost base that is also dollarising is expected to put pressure on margins going forward.

In its analysis of BAT financial results for financial year 2022 (FY22), IH said disposable incomes for consumers were set to marginally improve in 2023 due to increased mining activity, a forecasted strong agricultural season and reviews of wages for public sector workers.

“We believe that aforesaid bottom of the pyramid will aid a moderate uplift of cigarette volumes for BAT in FY23 relative to FY22. We believe that pricing will, however, come under pressure due to lower pricing from competitors.

“We are of the view that export volumes in the year will likely improve as key markets such as China pivot away from sustained lockdowns. Margins are expected to remain under pressure in the face of an elevated cost base that is also dollarising,” the firm said.

However, for forecasts to remain relevant in the present inflationary environment, the firm shifted to a United States dollar-based valuation of the business with United States dollar (US$) revenue seen registering at US$31,85 million to FY23.

“We believe that in the medium-term excise duties will revert to dollar era rates therefore decreasing the net revenue line.

“In our view, earnings before interest, taxes, depreciation and amortisation (EBITDA) margins will start moderating going forward down to a steady state of 40% while net income is expected to come in at US$10,5 million in the current earnings cycle. However, as margins correct to historical averages, we expect a slower growth of profits relative to the topline.” IH noted.

-newsday