Currency volatility concerns suggests British American Tobacco is a ‘hold’

26th February 2015

As British American Tobacco reports its full year results Ian Forrest, investment research analyst at The Share Centre, explains what this mean for investors…

In its full-year results announced this morning British American Tobacco beat expectations, however it expects the difficult trading conditions experienced in 2014 to continue in 2015.  Additionally, the company said headwinds from adverse movements in foreign exchange rates are likely to persist as well.

Overall sales in the year to December rose 2.8% to £13.97bn at constant exchange rates, with adjusted earnings up 8%. Investors should also note that the dividend was increased by 4% to 148.1p, which was higher than forecast and reflects the group’s commitment to raising it in real terms year on year.

The shares have outperformed the market over the past year with the 4% yield acting as a major attraction in volatile markets. Overall, tobacco volumes continue to decline but the company is still seeing good growth in large, developing countries such as Indonesia, Brazil and Mexico.

The commitment to use its strong cash flow to support a progressive dividend policy is attractive for lower risk investors however, we recommend investors ‘hold’ British American Tobacco. Investors may be interested to note our preference in the sector is Imperial Tobacco due to the fact that the shares are cheaper and the dividend is higher than BAT.

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