British American Tobacco, the world's second-largest cigarette maker, posted a 10 per cent rise in 2006 earnings today and dampened talk it may make a big acquisition as it boosted its dividend and share buy-backs.
The London-based group, which makes Lucky Strike, Kent, Dunhill and Pall Mall cigarettes, said it retained the ability to make a big acquisition, but analysts said this was unlikely in the short-term which helped to boost its shares.
"In our view, the increased return of cash to shareholders suggests large scale M&A by BAT is unlikely," said industry analyst Michael Smith at investment bank JP Morgan, after BAT raised its dividend 19 per cent and share buyback 50 per cent.
BAT shares rose 2.1 per cent to £15.82 by 1400 GMT, making them the second biggest gainer in the FTSE 100, boosted by solid trading, and the bigger returns to shareholders which were unlikely to be diluted by a big acquisition, analysts said.
"We still prefer to use our balance sheet to make acquisitions, but only if they make financial and strategic sense," BAT Chairman Jan du Plessis told a briefing, adding the buy-back could be suspended if an acquisition was available.
He said BAT 's strategy was to create value for shareholders rather than destroying it by poor acquisitions and added the group can meet its strategic goals by organic growth alone.
BAT 's adjusted 2006 earnings per share rose to 98.12 pence, in line with analysts' forecasts of 96.6-100.0p, as it raised its 2006 dividend to shareholders by 19 per cent to 55.90p a share, and its share back-buy programme to £750 million for 2007 from £500 million in 2006.
The company said the rise in the dividend and in the share buyback programme followed a review of its capital structure, and its dividend payout ratio from long term earnings will rise to 65 per cent in 2008 from 57 per cent in 2006.
The tobacco world was sparked into life last December when world No 3 producer Japan Tobacco agreed a £7.5 billion bid for the No 5, Benson & Hedges maker Gallaher, prompting talk over how other big tobacco groups like BAT might respond.
BAT, second only to Altria's Philip Morris in terms of size, reported like-for-like cigarette volumes rose 2 per cent in 2006, and the volumes of its four top global cigarette brands increased by 17 per cent driven by most emerging markets.