Paul Nyakazeya, Group Digital Editor 
BRITISH American Tobacco (BAT) Zimbabwe’s revenue is expected to increase by 50 percent to $68,3 million in the full year to December 31, 2019 due to inflationary pressures.
This was after the cigarette manufacturer registered $29,46 million revenues in the half year to June, predominantly driven by price increases.
Zimbabwe is currently witnessing waves of massive price increases, following a recent hike in fuel and electricity prices.
MCC Capital said BAT’s performance is expected to be better in the second half of the year due to anticipated improvement in seasonal demand.
While demand for cigarettes is almost inelastic, low disposable incomes and stagnant wages continue to impact volumes.
“This will translate into earnings per share of $0, 87 per share. Our price to earnings valuation metric using a peer average PE of 21,4x, and an EPS (+1) of 87 cents points to a fair value price of 1871,85c, a downside potential of 45 percent relative to the current price of 30 cents. We thus recommend a sell tag on the counter,” said MMC Capital.
In the half year period, requirements to pay duty in foreign currency negatively affected BAT’s premium brand, Dunhill, lowering volumes by 87 percent given the obtaining foreign currency shortages.
The value for money and low value for money brands also registered a 21 percent and two percent decline in volumes owing to low disposable incomes.
“Foreign currency import duty will continue to put pressure on the company’s premium brand sales in the year. The business will focus on effective cost management and effective route management,” said MMC Capital
BAT managed to source raw materials at lower prices and this resulted in a decline in cost of sales to revenue ratio to 20 percent from 27 percent during the same period last year.
Earnings before interest, tax, depreciation and amortisation margins declined from 54 percent to 41,4 percent during the period as selling, marketing and administration expenses increased in line with price increases in the economy.
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