EU CONSUMER STAPLES: British American Tobacco; 4Q (to Dec) results
(BATSLN; Baa1/BBB+/BBB+)
Co has reported +1% growth and is guiding to the same this year. It is complaining about the rise in illicit vape sales but we'd only note its reporting 1.2ppt falls in legal vape market share. We think it has no one to blame but itself - it generates the same FCF as PM (~$10b) but is spending $600-700m in capex including investments into smokeless - less than half of PM at $1.5b. It is not the only one - Altria is guiding to $175-225m in capex after sending $10b to equity holders. End of the day this is tobacco - technicals likely to remain in the driver seat, but for those eyeing carry we see Imperial as on better footing for this year and US only, Altria as better set-up for medium term (Trump is Tobacco friendly). No quarterly but a trading update should come in early June.
Final two asides; 1) value view on Scandi Tobacco has come off after strong rally and ahead of its results in a month and 2) PM is the sector leader by some distance - the cost to switch into it are at all time lows against most bond pairs.
- FY organic revenue +1.3% at £26b, net of divestitures and fx -5%
- combustibles flat; price/mix +5% offset by volumes -5%
- Next-gen +9%. Smokeless revenue makes up 17.5% of group sales (+1ppt yoy).
- EBIT came in at £2.7b (organic +1.4%). Adjusted was £11.9b on a 46% margin (+10bps).
- Statutory includes a £6.2b provision for proposed settlement in Canada (bulk 2015 lawsuits that PM/JAPTOB and BAT settled late last year for total c$32.5/£18b)
- FCF £7.9b, adjusted net debt at 2.44x (-0.1x)
- on cash held in Canadian subsidiary and impact to EBITDA lost, pro-forma net leverage would be 2.8x.
- Did £5.9b in equity pay-outs this year vs. capex of £580m
2025 Outlook
- Global tobacco volumes to be -2%
- +1% revenue growth (ex. FX)
- +1.5 to +2.5% adj. EBIT growth including a -1.5% FX headwind
- growth expected to be 2H weighted
- net 2.0-2.5x target left unch
- expects to be in that (from 2.8x pro-forma Canada) by end of 2026
- Committed to grow dividend (£5.2b paid this year) and another £900m in buybacks (£700m this year)
- capex which includes into new categories is tabled to total £650m
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FOREX: EURGBP Rally Extends, Focus Turns to UK CPI Release
- Sterling weakness continuing to stand out in G10 currency markets, as EURGBP extends session gains to 0.5%, registering a fresh two-month high in recent trade ~0.8443, helped by the quick fade of GBPUSD strength following the soft US data release.
- Price action for EURGBP narrows the gap to the next target of 0.8448, the Oct 31 high and a reversal trigger from a technical perspective. Further upside would signal scope for a move towards 0.8494, the August 26 high.
- The next key input for the Pound will be UK CPI, released tomorrow at 07:00 GMT, with focus on the services Y/Y figure for which consensus stands at a slightly softer 4.8% (vs 5.0% November). Our full preview for the release will be published shortly.
STIR: Effective Fed Funds Rate
FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $104B
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FRANCE: PM Bayrou Set To Speak At 1400GMT/1500CET
PM Bayrou’s general policy speech can be viewed at this link.
- French media outlets reported earlier today that Bayrou told parliamentary leaders of the gov't parties that he does not intend to announce a suspension of the 2023 pension reforms, instead favouring renegotiation in order to reach an agreement by September 2025.
- The centre-left Socialist Party (PS) has talked up a suspension of the reforms as its price for supporting the gov't in a post-speech censure vote.
- Should Bayrou's middle-ground approach on pension reform fall short of PS demands then it remains to be seen whether the Bayrou gov't can last.
