By CHARLES MWANIKI, firstname.lastname@example.org
Posted Monday, June 8 2015 at 18:46
BAT Kenya’s share has shed gains made in May as foreigners exited against a background of shilling volatility and a tougher regulatory regime which slapped a two per cent tax on local sales from last Friday.
The counter closed Monday at Sh707 having dropped 8.4 per cent in over a week in contrast 5.8 per cent gain the preceding week.
This came as Alliance One, a cured tobacco leaf exporter, reported it was reducing local operations on an adverse global regulatory regime.
At its current price level BAT is 22.1 per cent down year to date, marking turnaround in fortunes of the counter that was one of the stellar performers at the bourse in 2014 enjoying a full-year price gain of 51.3 per cent to Sh908.
“The price movement is mainly on market jitters, especially from foreign investors who have become more sceptical of shilling-backed assets. We have seen some counters lose out more than others on this foreign movement, especially the blue chips,” said ABC Capital corporate finance manager Johnson Nderi.
Foreign investors have this year pulled out Sh600 million from the BAT counter. Share owners have seen their worth fall by Sh34.3 billion since the Sh1,050 peak in October last year, when the stock was driven by investors looking to lock in a higher dividend that was issued at Sh42 per share for the year ended December 2014.
The price was, however, seen as tending towards the steeper side when looked at in terms of dividend yield which was at four per cent, courting a price correction after closure of books at the end of March.
Investors had enjoyed a higher dividend yield of 6.8 per cent in 2013 when the stock averaged Sh555 and the company paid a dividend of Sh37 per share.
Concerns in particular surround the tobacco sector over the new and more stringent tobacco laws which came into effect last Friday. The guidelines stipulate that cigarette makers must display pictogram health warnings on cigarette packages and wrappers, while sales made in Kenya will attract a two per cent health tax which will go towards the Tobacco Control Fund.
BAT has challenged the new laws in court, arguing that some of the provisions are unlikely to succeed in addressing public health concerns and could edge out legitimate players in favour of illicit traders.
US-based tobacco company Alliance One International announced last week that it was scaling back its Kenyan operations in response to the poor global outlook of the industry.
This will result in the firm no longer contracting farmers to grow tobacco and a reduction in staff at its Thika-based processing plant.
Standard Investment Bank says due to the new regulations and determination by the government to tackle social, environmental and health impacts of tobacco, the share is looking at a downside, with a fair value of Sh599, 16.6 per cent down on the current price.
“This (government drive) raises the prospect that excise tax to the sector could also be raised drastically in the upcoming national budget,” said SIB analyst Eric Musau in the BAT valuation note.
According to Mr Nderi, however, BAT’s saving grace is likely to come from the contract manufacturing and sales business which will not be affected by the law.