British American Tobacco to cut stake in ITC amid losses

Tobacco major British American Tobacco is looking to trim its £15 billion stake in the Indian cigarettes-to-hotel conglomerate ITC, according to media reports.

The maker of Lucky Strike and Dunhill cigarettes announced this alongside a large annual loss of over £17 bn and a mixed outlook.

BAT currently holds over 29 per cent stake in the Kolkata-headquartered company and announced that it also wishes to retain a level of strategic control over ITC by not selling below a 25 per cent regulatory threshold.

This announcement has sent BAT shares up 7.4 per cent, or 172p, to £24.91 on the London Stock Exchange, with investors hoping for a share buyback.

BAT’s chief executive and former finance boss Tadeu Marroco said it hopes to begin the disposal “as soon as we can” but cautioned that the process was complicated and the timing uncertain because clearance was required from India’s central bank, The Times reports.

BAT has been actively working on completing the regulatory process required to give them the flexibility to monetise some of their shareholding, Marroco told the daily.

The holding in ITC dates back to the early 1900s and has been reduced over time.

This announcement comes after some of BAT’s competitors have announced buyback schemes. Rival Imperial Brands announced a £1.1 bn share buyback scheme in November, after an earlier £1 bn programme. Altria, the owner of Marlboro cigarettes in the United States, announced a $1 bn programme last week.

The tobacco industry is contracting in large mature markets, such as the US, encouraging companies to invest in launching new non-combustible products, such as e-cigarettes and heat-not-burn devices, while navigating tighter regulation.

In December, BAT wrote down the value of its US cigarettes business, mainly relating to its Newport, Camel, Pall Mall and Natural American Spirit brands, by £25 bn. This made BAT's shares plummet to a 13-year low in December.

While announcing the annual results, BAT said the non-cash impairment charge was now slightly higher at £27.3 bn, following a review ahead of its full-year results and because of foreign exchange movements.

It meant BAT slumped to an annual loss of £17.06 bn, compared with a profit of £9.32 bn a year ago. Adjusted operating profit rose 3.9 per cent to £12.47 bn.

Meanwhile, Jefferies has downgraded the ITC stock to ‘hold’ from ‘buy’ and slashed its target price to Rs 430 from Rs 520 a share, reports MoneyControl.