Dividends firing higher

Weapons builder BAE Systems (LSE: BA) has long been a reliable pick for those seeking robust dividend growth year-after-year. The dependable nature of its products in today’s volatile world gives the business terrific long-term earnings visibility, a critical quality for income chasers, and I expect steady economic growth in the US and UK to keep propelling profits higher.

BAE Systems saw sales leap 7.6% in 2015 to £17.9bn, it announced on Thursday, a result that drove operating profit 15.5% higher to £15bn. And chief executive Ian King said that he expects profits to advance a further 10% in the current period “as defence budgets recover.“

Supported by a predicted 5% earnings recovery, the City expects BAE Systems to raise a dividend of 20.9p for 2015 to 21.5p in the current period. A consequent 4.2% yield comfortably outstrips the FTSE 100 average of 3.5%, and I expect payouts to keep marching higher as the firm’s expertise across a variety of defence applications delivers solid sales growth.

A smoking income pick

Like BAE Systems, cigarette giant Imperial Brands (LSE: IMB) also has a stellar reputation for delivering exceptional dividend expansion. While tobacco volumes may be heading lower across the industry, the colossal strength of labels like John Player Special and Gauloises enables the London firm to keep delivering earnings growth year-after-year.

Imperial Brands is, not surprisingly, doubling-down on product and marketing investment in its ‘Growth Brands’ to capitalise on their popularity, while moves into the rapidly-growing vapour and caffeine segments also provides the business with hot sales opportunities.

And helped by the impact of huge cost-cutting across the business, Imperial Brands is expected to punch a meaty 10% earnings rise in the year to September 2016. Consequently the tobacco giant is predicted to lift the dividend to 155.1p per share from 141p last year, yielding an impressive 4.4%.

A fine financial selection

Life insurance leviathan Legal & General (LSE: LGEN) has endured a torrid start to 2016, the stock shedding 16% of its value since the start of January as market jitters have weighed.

Legal & General went some way to assuaging investor concerns over the exposure of its bond portfolio this month, however, the company advising that its exposure to the basic resources sector stands at just 1.2% and the oil and gas segment at just 5.2%.

Sure, the stock may have recovered some ground since then, but I believe Legal & General is still far too cheap. The company continues to enjoy rampant product demand across the globe, helped in no small part by steady product innovation in the face of demographic and technological changes.

With Legal & General expected to follow a predicted 14% earnings advance for 2015 with an extra 7% rise in 2016, the number crunchers expect the dividend to rise to 14.3p per share this year from an anticipated 13.4p previously. Consequently the insurance giant sports a spectacular 5.4% yield.

The post Should You Buy Giant Yielders BAE Systems plc, Imperial Brands PLC And Legal & General Group Plc? appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Break out the bubbly

At first glance, consumer goods plays like Diageo (LSE: DGE) may not be the obvious port of call for those seeking reliable dividend growth during times of macroeconomic turbulence.

Of course, shopper spending is one of the first areas to deteriorate as consumer confidence falls through the floor and people’s wallets and purses become that little bit lighter. But I believe the strength of Diageo’s market-leading labels have the capacity to keep earnings ticking higher regardless of challenging trading conditions.

The London firm is chucking huge sums at developing and marketing brilliant brands such as Captain Morgan rum and Johnnie Walker whisky, and is also doubling-down on the fast-growing premium segment to deliver sales growth. Diageo has rolled out fruit-flavoured versions of its Cîroc high-priced vodka in recent months, for example.

With sales to emerging markets also poised for lift-off, I reckon meaty dividend hikes can be expected in the years ahead as earnings surge. In the meantime, last year’s 56.4p-per-share reward is anticipated to advance to 58.4p in the period to June 2016, creating a handy 3.1% yield.

A defensive destroyer

Underpinned by steady investment by both the US and UK armed forces, I believe major defence supplier BAE Systems (LSE: BA) is a surefire hit for those seeking reliable dividend expansion.

Due to the broad range of potential security threats facing the West — from the increasingly-expansionist policies of China and Russia to the rising might of IS fighters across the Middle East, Africa and now in Europe — demand for BAE Systems’ cutting-edge hardware and software is likely to remain robust looking ahead.

Thanks to its solid long-term earnings outlook, BAE Systems is expected to lift a dividend of 20.5p per share in 2014 to 20.8p for last year, even in spite of an expected 1% earnings decline. And with the bottom line forecast to bump higher again from the current period, another payout rise to 21.5p is predicted for 2016, yielding a brilliant 4.2%.

Light up your investment returns

It’s no secret that cigarette giants such as Imperial Brands (LSE: IMB), as Imperial Tobacco Group is now known, must overcome a multitude of mighty hurdles — from rising regulatory hurdles to a growing black market — to keep earnings growing in the years ahead.

But thanks to the titanic strength of labels like Davidoff, West and John Player Special, I believe Imperial Brands (like Diageo) has what it takes to traverse these problems and keep sales growing. Indeed, the business has shuttered scores of local labels to focus investment on these so-called ‘Growth Brands’, a decision that’s delivering handsome rewards.

With the company also entering other hot markets like e-cigarettes, the City is confident that Imperial Brands should keep its progressive dividend policy well on track. The business is expected to hike last year’s dividend of 141p per share to 155.1p in the year to September 2016, creating a chunky yield of 4.4%. And I expect payouts to keep rolling higher as earnings steadily advance.

The post Diageo plc, BAE Systems plc & Imperial Brands PLC: Dividend Delights For Difficult Times appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Diageo. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Unilever (LSE: ULVR) has increased its dividend payout this quarter by 5% compared to a year ago and investors will receive 30 cents on 9 March.

Unilever is a great defensive play to add for the long term. The world might blow up, but people will always buy food, soap and shampoo. Its recent results really highlight this because, despite falling inflation pressurising consumer product prices, the multinational executed effective strategies to grow its business markets that were showing signs of weakness.  

Sales in emerging markets rose 7.1%, helping to take the sting out of a 6% decline in pre-tax profits. Meanwhile, the brand loyalty campaigns Unilever mounted in the UK proved effective as a fightback against falling food prices.

Will currency weakness begin to hurt?

Risks for Unilever include the continued deflationary trend globally and a weakening US dollar, because Unilever reports in euros but makes most of its sales in dollar areas. When the dollar is strong, this contributes significantly to the bottom line. But dollar strength is no longer a given, especially with the Fed indicating last week that it places greater emphasis on ‘global factors’ before raising interest rates again. This means that when the yuan weakens, it can even drag down the dollar. Crazy, but true.

Unilever’s 2.9% dividend yield might look feeble, but this also means the company is prudent in not over-promising and is making sure the cover is rock solid (1.9 times). With a P/E of 23 and the stock weathering the January sell-offs remarkably well by remaining flat, I believe this is still absolutely a great buy.

Weathering the storm

Imperial Tobacco Group (LSE: IMT) stock goes ex-dividend on Thursday 4 February and the company pays a dividend of £0.49 per share on Thursday 31 March.

Imperial will soon be faced with a brand loyalty challenge as the UK government plans to ban graphics on the outside of cigarette packets. However, it’s unlikely to impact the world’s fourth-largest cigarette company much. It’s going from strength to strength, mostly due to foreign sales. It realised a 15% rise to £1.76bn in pre-tax profits for the year to the end of September 2015.

Like Unilever, the US is a key market for Imperial. And as the British pound is less of a ‘safe haven’ currently than the euro, it looks like Imperial’s future earnings are somewhat less prone to currency risks than Unilever’s. A slump in emerging markets is also less of a threat to Imperial than Unilever as people will always smoke despite economic downturns.

There’s everything to like about Imperial. The company has committed to paying more regular dividend yields, and currently pays 3.74%. Its stock was impervious to January’s market turbulence too,  holding on to its 20% gains over the past 12 months. I would say, go buy it!

The post Should You Buy Unilever Plc & Imperial Tobacco Group Plc Before They Go Ex-Div? appeared first on The Twelfth Magpie.

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Imperial Tobacco

The tobacco sector usually holds up very well during bear markets. Imperial Tobacco (LSE: IMT) is in a solid position and recently made a clever acquisition of US brands to boost market share. Today the stock yields a bumper 4%, which is covered by 1.25 times in cash. The stock has a reasonable PE ratio of around 15, which is cheaper than its main rivals, and its growth prospects are very good. In an industry of declining volumes, Imperial Tobacco continues to make great profits and that looks to continue for years to come. 

Randgold Resources

As a gold miner Rangold Resources (LSE: RRS) has traditionally been a ‘safe haven’ stock into which money would flood in bear markets. Although gold has lost some of its safe haven status in the last year or two, I think Randgold Resources will outperform the market this year. The company is completely debt-free and produces gold at some of the lowest costs in the world. The PE ratio is a lofty 28 but this shouldn’t put investors off the stock, the exposure to the gold price is why the stock is attractive. 

GlaxoSmithKline

GlaxoSmithKline (LSE: GSK) is again a defensive stock that should hold up well in a bear market. The pharma giant has a dividend yield of 6% that will provide a great income for dividend investors. The company trades with a PE of 16, which again is very reasonable, and earnings per share are forecast to rise by 15% in 2015 and 11% in 2016. This earnings per share growth should give the shares a reason to rise in the future and provide returns for investors. 

The story so far

I’ve highlighted three interesting stocks that all have good futures ahead of them and importantly hold defensive qualities. If China continues to cause economic headaches around the world, then money will flood into them.

To illustrate this, since the start of the year the FTSE 100 is 6% down. However, all three of these stocks have significantly outperformed. Imperial Tobacco is down only 0.79%, Randgold Resources is up 3.2%, and GlaxoSmithKline is up 1.2%. 

Investing in defensive stocks is a clever move that may lead to you outperforming a falling market through 2016. 

The post Should You Buy Defensive Stocks Imperial Tobacco Group PLC, Randgold Resources Limited & GlaxoSmithKline plc? appeared first on The Twelfth Magpie.

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Jack Dingwall holds shares in Imperial Tobacco. The Motley Fool UK has recommended GlaxoSmithKline. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

There has certainly been plenty to test even the most bullish of stock pickers. Choose from further swathes of disappointing data from China; poor financial updates from the US, allied to concerns over the implications of Federal Reserve monetary tightening; and of course, the further downleg in commodity values.

These concerns have turned the FTSE 100 from something of a damp squib into a hazardous firecracker. The index fell 5% during the course of 2015 and has collapsed 7% since the turn of the year. This comes as little surprise however given the FTSE’s strong bias towards mining and commodity stocks, segments that are facing an increasingly-precarious outlook.

But I believe the FTSE’s prolonged sell-off can provide plenty of opportunities for savvy investors. As a broad rule, successful stock pickers tend to select companies with a view to holding them for a minimum of five years, and I believe there are plenty of stocks at the top of the London Stock Exchange whose long-term prospects remain extremely bright.

Housing heroes

Housebuilders like Taylor Wimpey (LSE: TW) and Barratt Developments (LSE: BDEV) were two of the FTSE 100’s strongest performers during the course of 2015, a backcloth of surging homebuyer demand and the enduring shortage of new homes entering the market driving values resoundingly higher.

Still, these shares have been washed-out by the wider malaise currently denting investor sentiment, and Taylor Wimpey and Barratt Developments have seen their values fall 12% and 10% respectively since the start of January.

But I believe this represents a fresh buying opportunity as house price growth shows no signs of slowing. Indeed, EY Item Club estimates that home values will advance a further 6.5% during 2015 alone.

Brand beauties

Elsewhere, I believe that selecting companies boasting stellar brand power is more important than ever as worsening economic pressures threaten to dent broader consumer spending activity.

With this in mind, I believe diversified manufacturer Unilever (LSE: ULVR) is a terrific defensive bet, a stock whose labels like Dove soap and VO5 shampoo command strong shopper loyalty. As such, the business enjoys robust revenue visibility, whatever the financial climate.

Unilever can afford to lift prices even as consumers’ wallets become lighter. Indeed, the London company continues to shrug cyclical woes in emerging markets, and saw sales in these regions rising 8.4% in July-September, accelerating from 6.5% in the prior quarter.

Fellow household goods leviathan Reckitt Benckiser (LSE: RB), along with drinks manufacturer Diageo (LSE: DGE) and cigarette giant Imperial Tobacco (LSE: IMT), also enjoy brilliant pricing power through their market-leading labels.

Medical marvels

Regardless of the impact of cyclical bumpiness in the global economy, medicine demand is of course one of life’s essentials, and I believe a backcloth of rising populations and galloping healthcare investment the world over should keep powering drugs growth higher in the years ahead.

FTSE 100 stalwarts GlaxoSmithKline (LSE: GSK) and AstraZeneca (LSE: AZN) have both thrown vast amounts of cash at reinventing their product pipelines, work that’s expected to put to bed the impact of crippling patent losses and drive earnings higher again in the next few years.

And investors should also keep an eye on Hikma Pharmaceuticals (LSE: HIK), a pharma play that (like GlaxoSmithKline and AstraZeneca) has invested heavily on bolt-on acquisitions to supercharge sales growth in developed and developing regions alike.

The post Forget Fear: Why The FTSE 100 Can Still Yield Terrific Returns! appeared first on The Twelfth Magpie.

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Royston Wild owns shares of Barratt Developments. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended AstraZeneca, GlaxoSmithKline, and Hikma Pharmaceuticals. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

On the right track

Shares of global spirits juggernaut Diageo Plc (LSE: DGE) have not been feeling the Christmas spirit this holiday season, with prices dropping 7% from the beginning of December. Investor worry has been centered on growth being constrained by saturation in developed countries as well as the slowdown in emerging markets, which account for roughly 40% of overall sales. However, it’s this exposure to emerging markets, while restraining sales for the time being, that holds the key to Diageo’s potential to produce large returns to shareholders over the long term.

The management team has been shedding non-core assets such as its wine business and smaller beer holdings in order to focus on the spirits and Guinness beer brand that make up the heart of the business. These divestments have also happened alongside the goal of increasing margins by 1% (to reach 29%) and returning to growth in 2017. It all shows that Diageo has attractive growth markets ready to tap for decades to come. It also has a focused business plan and the benefits of being a defensive play, since people buy alcohol in good and bad economic times alike. Given these qualities, I believe Diageo and its 3.12% yield is certainly an attractive investment for long-term investors, despite trading at a relatively-pricey 19 times earnings.

Dinosaurs or dynamic?

Tobacco companies such as Imperial Tobacco Group (LSE: IMT) and British American Tobacco (LSE:BATS) present something of an ink blot test for investors. Some view them as decrepit dinosaurs plagued by increasingly restrictive regulation, high debt levels and little prospects for growth. Meanwhile others see high dividends, the ability to continually increase profitability by cutting costs, and resilience in the face of 40 years of regulations.

Imperial investors have certainly fallen into the latter category, with shares rising nearly 25% year-to-date on talk of a possible takeover by rivals BATS and attaining nearly 10% control of the highly-profitable American market through acquisitions. With net margins a miserly 7.5% compared to BATS’ 31.62% there’s certainly room for increased profitability even if revenue grows slowly. The shares currently sport a 4% yield and with the higher margin US business set to begin lifting profits, plus the acquisition of market-leading e-cigarette brand Blu, Imperial has understandably been an investor darling.

Imperial’s larger rival BATS also offers a heady 4% dividend and with high margins and a globally diversified presence, it has been a stable recommendation for several years. However, both companies face stagnant organic revenue growth and thus cannot be said to be undervalued much as they’re trading at roughly 20 and 17 times earnings, respectively, going into the New Year.

Despite their high dividends, I believe Imperial and BATS offer little room for growth for long-term investors. Such investors would be better served by looking at a company such as Diageo that has both a solid dividend and high growth potential.

The post Are Sin Stocks Diageo Plc (LSE:DGE), Imperial Tobacco Group Plc (IMT) & British American Tobacco Plc (LSE:BATS) Undervalued? appeared first on The Twelfth Magpie.

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That’s great news. But after such impressive gains they’re both trading at premium valuations, that leave little room for error, and it could be time for investors to sell up and reinvest their profits elsewhere.

Small sector

As British American and Imperial are the only two listed tobacco companies with their primary listing here in the UK, it’s difficult to value the two companies without looking overseas. For example, at present Imperial is trading at a forward P/E of 15.1 and British American is trading at a forward P/E of 18.3. These two multiples give a sector average of 16.7, which isn’t really all that helpful. 

But by including US-listed tobacco companies in the calculation, a clearer picture emerges. Specifically, US tobacco giants Phillip Morris, Altria and Reynolds American trade at forward P/Es of 19.3, 19.3 and 20.3 respectively. So, when compared to their international peers, British American and Imperial certainly look undervalued. 

However, there’s a good reason British American and Imperial trade at a discount to their US peers. The UK tobacco giants have much tighter profit margins than those American firms. As a result, they’re unable to return as much cash to shareholders and deserve a lower valuation. Last year Imperial’s operating profit margin was a dismal 7.9%, the lowest of the group. At the other end of the scale, Reynolds American reported an operating profit margin of an impressive 67% for last year. Philip Morris’s reported operating margin was 42%, and even British American’s operating margin came in at 33% for full-year 2014. 

Historic trends

So, while British American and Imperial do deserve to trade at a discount to international peers, it’s still not clear if the shares of these companies are undervalued or overvalued at present levels. The best way to answer this question is to look at the historic valuations of each company. 

Take Imperial. During the past decade, the company has traded at an average forward P/E of 12. In fact, the only time its valuation exceeded 16 times projected earnings was briefly back in 2007 when the market was charging to new highs, unaware of the financial crisis that was just around the corner. 

Similarly, British American has traded at an average forward P/E of 14 for the past decade. There’s only been one occasion in the last 10 years when the company’s shares have traded at a valuation of more than 17 times forward earnings. So right now, that means British American’s shares are more expensive than they have been at any point in the past decade.

All in all then, it could be time to sell both after recent gains, as the two companies look to be trading at extremely stretched valuations.

The post After A Good Run, Is It Time To Sell Imperial Tobacco Group PLC And British American Tobacco plc? appeared first on The Twelfth Magpie.

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• 6.7% yield! Is Imperial Brands an irresistible FTSE 100 share to consider?

Rupert Hargreaves owns shares of Imperial Tobacco Group. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

British American Tobacco (LSE: BATS) has been mentioned as one of the potential bidders for Imperial. But Imperial may be too big for British American to swallow whole without any help. This has led to speculation that some Imperial’s peers will get together and offer to buy separate parts of the company.

Breaking Imperial up would also help any potential bidders work their way around any anti-trust issues that may arise with regulators around the world.

Who is the buyer? 

So, who could be interested in Imperial?

Well, it all comes down to market share. Imperial has a 16% share of the European tobacco market, closely followed by Japan Tobacco with an 18% share. British American has a 21% share of the European tobacco market, and Philip Morris controls 38% of the market. To get around anti-trust regulators, it’s likely that Japan Tobacco would make an offer for Imperial’s European operations. 

Over in Russia, it’s Japan Tobacco that controls more than a third of the market. Imperial once again has a market share of 10% and British American comes close second with a market share of 21%. If British American were to make an offer for Imperial’s Russian operations, it would take the tobacco giant’s share of the market to 31%, in line with that of Philip Morris and Japan Tobacco.

In Indonesia, Imperial controls 28% of the tobacco market through its Gudang Garam subsidiary. Japan Tobacco has no exposure to the region, Philip Morris has a market share of 35% and British American controls 8% of the market. With this being the case, both Japan Tobacco and British American could be bidders for Imperial’s Indonesian assets.

The final major market, the US, is more complex than any other. Indeed, the market has three main players, Reynolds American (32%), Altria (51%) and Imperial (10%). However, British American owns a majority stake in Reynolds American while Altria is essentially the US arm of Philip Morris. Japan Tobacco has no exposure to the region.

All in all, it looks as if British America and Japan Tobacco are Imperial’s most likely suitors, based on current market share information. 

Time to buy?

Investors shouldn’t rush to buy Imperial’s shares on the speculation that the company may be taken over at some point in the future. Takeover rumours rarely have any weight behind them, and Imperial has been the subject of such rumours for more than two decades. 

What’s more, Imperial’s shares are now more expensive than they have been for a long time. The shares currently trade at a forward P/E of 16.3, compared to the five-year average of 12.6. 

Still, for income investors, Imperial could be a decent investment at present levels as the company’s shares support a dividend yield of 3.9%.

The post Is British American Tobacco plc Preparing An Offer For Imperial Tobacco Group PLC? appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns shares of Imperial Tobacco Group. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

AstraZeneca

Medicines play AstraZeneca (LSE: AZN) cheered the market this week after lifting its revenues and earnings guidance for 2015, news that reflects the hard work the firm has put into turbocharging its drugs pipeline. The London firm now expects full-year sales at constant currencies to match 2014’s levels, while earnings are predicted to rise by a “mid-to-high single digit percentage,” up from a previously-predicted “low single-digit” advance.

Sure, the problem of patent expirations is expected to remain a challenge in 2016, particularly for its sales-driving Crestor cholesterol treatment. But AstraZeneca’s focus on hot growth areas like diabetes, cardiovascular and respiratory treatments, combined with ongoing success in new regions — Chinese sales rose 11% during July-September — should deliver strong returns in the years ahead. An expected 1% earnings decline for 2015 leaves the business trading on a P/E ratio of just 15.1 times, great value in my opinion given the firm’s robust growth prospects.

Imperial Tobacco Group

Like AstraZeneca, I believe the surging financial might of developing regions should power sales at Imperial Tobacco (LSE: IMT) higher in the years ahead. Emerging markets, and particularly those of Latin America, have long been earnings drivers for the cigarette industry thanks to more favourable attitudes towards smoking compared with those of the West. And I believe improving spending power in these places should propel demand for Imperial Tobacco’s brands steadily skywards.

The business announced this week that volumes of its its earnings-driving ‘Growth Brands’ like West and Davidoff leapt 10.7% during the 12 months to September 2015, a result that pushed operating profit 2.4% higher to £3.1bn. And Imperial Tobacco’s decision to hike investment in these brands should keep earnings moving skywards in my opinion — indeed, the City has pencilled in a 10% leap for 2016 alone, resulting in a very-reasonable P/E ratio of 14.8 times.

Old Mutual

Thanks to its broad spread across Africa, I am convinced insurance leviathan Old Mutual (LSE: OML) should deliver resplendent shareholder returns in the coming years. The company announced this week that gross sales surged 31% during July-September, to £8.1bn, while net inflows hit £2.3bn in the period, representing a record quarterly performance.

Furthermore, sales at its Old Mutual South Africa business leapt by 28% in the third quarter, while demand rose almost a third across the rest of its continental operations. And helped by its ambitious acquisition drive, not to mention legislative changes in the UK, Old Mutual saw pension sales rocket 71% in the period.

So although the firm warned of foreign exchange headwinds ahead, not to mention enduring challenges in emerging markets, the City expects Old Mutual to enjoy 11% and 5% earnings upticks in 2015 and 2016 respectively, resulting in mega-low P/E ratings of 10.5 times and 10.1 times.

Mondi

Helped by its bubbly acquisition strategy, I am convinced that paper play Mondi (LSE: MNDI) should enjoy terrific earnings expansion in the years ahead. Just this week the business snapped up flexible packaging builder KSP, a specialist in the food and beverage sectors, in a move that bolsters Mondi’s position in the high-growth US and Asian marketplaces.

On top of this, Mondi is touting around €500m worth of improvements to its existing facilities in Eastern Europe, including adding 300,000 tonnes of capacity in Slovakia for new products and to reduce bottlenecking. Thanks to this bullish attitude to pursuing new opportunities, the City expects Mondi to follow earnings expansion of 26% this year with a 9% rise in 2016. And these readings produce very-decent P/E multiples of 15.5 times and 14.2 times respectively.

The post Why Earnings Are Set To Ignite At AstraZeneca plc, Imperial Tobacco Group PLC, Old Mutual plc And Mondi Plc appeared first on The Twelfth Magpie.

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Royston Wild owns shares of Imperial Tobacco Group. The Motley Fool UK has recommended AstraZeneca. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

It’s easy to see why British American’s management is so upbeat about the company’s performance. For the nine months ended 30 September, revenue grew by 4.2% at constant exchange rates and the volume of Global Drive Brands cigarettes sold by the company grew 7.2%.

That being said, the total number of cigarettes shipped by the group during the period decreased by 1.8% to 487bn, and after including the effect of exchange rates, revenue fell 6.5% for the period.

Nevertheless, despite these lacklustre figures, British American did continue to gain market share during the period. The group’s market share in key markets increased by 0.4% during the nine months to the end of September. 

British American has also continued to consolidate the global tobacco industry this year with the acquisition of TDR d.o.o, a tobacco company operating within Eastern Europe and Souza Cruz a Brazilian cigarette producer. 

On track to meet targets

Today’s upbeat trading update from British American shows that the business is on course to meet City forecasts for growth this year. The City is expecting the company to report earnings per share of 207.5p, down 1% year-on-year due to negative currency movements.

Excluding the impact of currency, British American’s earnings per share would be set to increase by 3% to 4% this year. Still, slowing earnings growth isn’t expected to affect the group’s dividend payout.

British American’s dividend payout is set to increase 5% this year. The company’s shares currently support a dividend yield of 4.1% and trade at a forward P/E of 18.5.

Wider industry trends

As one of the world’s largest tobacco companies, British America’s results are indicative of broader industry trends, which is good news for shareholders of Imperial Tobacco (LSE: IMT)

Imperial has already got off to a good start to the year. For the nine months ended 30 June, the company reported that underlying net revenue had risen 14% year-on-year. Volume had increased by 10% during the same period. On a constant currency basis, group tobacco revenue increased 2% for the nine months to 30 June. 

But once again, City analysts expect the strong pound to weigh on Imperial’s results for the full-year. Analysts’ have pencilled in earnings per share growth of 2% for Imperial this year.

However, double-digit growth of 13% is expected for next year as Imperial benefits from its cost reduction plan and the acquisition of US assets, which took place earlier in the year.

If British American’s results are anything to go by, Imperial is highly likely to meet these lofty growth targets. 

Imperial is the cheaper of the two tobacco giants. Based on current City figures, Imperial trades at a forward P/E of 16.8 and yields 4.0%. After factoring in next year’s growth, Imperial is trading at a 2017 P/E of 14.8. 

The post British American Tobacco plc’s Results Indicate Good Things For Imperial Tobacco Group PLC appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns shares of Imperial Tobacco Group. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.