British American Tobacco Uganda (BATU) shares constitute about 18.8% since July as investors declare that the cigarette market will gain more from its exports due to a declining shilling and increased volumes.

Currently BATU started processing tobacco leaf for export to Africa, which might lead to higher turnover for the Uganda Securities Exchange listed firm. This happened after BAT International opened its head office in Uganda. As it is known all exports are sold in dollars, when BATU converts those dollars to Ugandan shilling it gains more since the local currency has lost its position in comparison to USD.

The BAT’s shares at the Uganda Securities Exchange (USE) have increased from approximately Ush1, 300 ($0.51) to Ush1, 545($0.6), a positive performance in comparison to other local stocks that have decreased in value due to the falling condition at the USE. Total market activity for a single day constituted Ush2.2 million ($855). Growing interest rate on government papers and increasing inflation have weakened the appetite of many investors for shares in recent months, thus causing dropping prices, low market turnover and multiple decreases in the All Share Index.

Cigarette exports account for approximately 80 % of the company’s income. Since 2009, BATU’s market ratings have significantly improved with its dividend income and basic earnings per share surpassing those of other local stocks. A very small number of listed shares have also favored BATU. The counter owns about 49 million shares, with 60 % possessed by institutional investors who do not wish to sell them. According to experts, this has led to repetitive increases in price whenever ponderable offers are made. The recent decision to transfer BAT International’s headquarter from South Africa to Uganda is viewed as a significant stimulus to tobacco industry ratings after many years of growing output.

Processed tobacco volumes have increased by 3 % to about 19,500 tonnes in 2009, according to BATU data. BATU has a very good position in the tobacco market as it has very few shares and one of the highest dividend yields. This means that a little raise in demand will raise prices. Currently BATU’s dividend yield ranges between 10 and 11 % due to a higher dividend of Ush158 ($0.06) that was paid in 2010. With the current transfer of headquarter, BATU may gain from additional investments and capture rather small but profitable tobacco industry. Thus tobacco giant will control all leaf buying activities for Africa and the Middle East tobacco markets.

According to BATU representative, they company plans to increase productivity levels per farmer in order to raise productive capacity other than broadening its 30,000 strong farmer base. BATU has often faced low liquid funds with tobacco buyers being in the toils of sellers and this has driven up its price.

By Clark Moore, Staff Writer Copyright © 2011 Hot-Cigs.com All rights reserved.