British American Tobacco (BATS)

Sector:

Tobacco

Index:

FTSE 100

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2,925.50p
   
  • Change Today:
      20.00p
  • 52 Week High: 4,222.50
  • 52 Week Low: 2,375.00
  • Currency: UK Pounds
  • Shares Issued: 2,293.80m
  • Volume: 1,824,319
  • Market Cap: 67,105m
  • RiskGrade: 131
  • Beta: 0.02

Canadian court keeps BAT hooked for 6bn

By Oliver Haill

Date: Monday 04 Mar 2019

LONDON (ShareCast) - (Sharecast News) - Canada's Court of Appeal has upheld the Superior Court's decision to force three tobacco companies to pay at least C$15.6bn (£8.9bn) of damages as part of near 20-year court case brought by a group of 100,000 smokers.
The ruling, given on Friday, upholds a decision in 2015 that British American Tobacco's Canadian subsidiary should pay a share of total damages of C$10.4bn (£5.9bn), while the share of Philip Morris International's Rothmans, Bensons & Hedges arm is C$3.2bn and Japan Tobacco's JTI Macdonald is C$1.9bn. But it is believed the total award will have swelled to roughly C$17bn due to interest incurred, said Rob Cunningham, senior policy analyst with the Canadian Cancer Society.

A BAT spokesperson said the subsidiary "needs to review the court's decision in more detail and will decide on next steps over the coming days and weeks" but have said that they "fully intend to appeal the decision" to the Supreme Court of Canada. The FTSE 100 group stressed that it is not a party to the judgement, only its Canadian subsidiary, Imperial Tobacco Canada.

The cases were brought against the three tobacco manufacturers on behalf of two groups of Québec smokers, including one group who smoked a minimum of 12 pack-years and who were diagnosed with lung, throat and laryngeal cancer or emphysema prior to 12 March 2012; and smokers who were addicted to nicotine at the time the proceedings began in September 1998 and remained addicted until at least 21 February 2005.

For its part, PMI said it would incur a charge of roughly $194m in the first quarter of the year, resulting in the group cutting its full-year 2019 earnings per share guidance to be at least $5.28 from $5.37.

Rothmans, Benson & Hedges said that in the history of class action lawsuits in Canada, plaintiffs must not only prove that the defendants engaged in wrongdoing but also that this wrongdoing caused every member of the class injury.

Peter Luongo, managing director of RBH, said not one single smoker was called to testify nor was any evidence produced that RBH misled anyone. "We believe this unprecedented change in the law warrants review and reversal by the Supreme Court of Canada," Luongo said in a statement.

The BAT spokesperson said: "We are still of the view that this decision is wrong - ignoring the reality that both adult consumers and government have known about the risk associated with smoking for decades. As a result, we believe it should be overturned."

After the plaintiffs filed a formal motion for the release of the funds, currently held in escrow, Imperial Tobacco Canada filed a motion to prevent the release.

Analysts at Jefferies suggested that, in a worst case scenario, the court will reiterate its requirement that BAT pay C$758m and PMI pay C$226m in six equal quarterly instalments, but felt it was unlikely the full amounts are ever settled.

"If the case was appealed and they lost again, a possible outcome is all three names declare bankruptcy. There would be no liability on the parent. Such action would be most likely at BAT, with the fine value way greater than the business value, but we think there is also an argument for bankruptcy at PMI and JT."

Analysts at Liberum said that the most important issue for BAT was that it was not a party to the proceedings and is not a party to the judgement.

"In a worst case scenario, it is possible that this ultimately goes the route of CCBA (bankruptcy). In this case, moderators are appointed and the local management teams typically remain in control, enabling the group to continue consolidating the earnings. A CCBA filing would pull together all outstanding litigation, including the larger healthcare recoupment cases. As a result, this is very likely to take a number of years.

"The government ultimately enjoys ample tax revenues from the tobacco industry and the illicit trade remains a far greater enemy of public health officials. Canada has a unique market feature in that the First Nations (indigenous peoples of Canada) are allowed to produce tobacco. While the shares could be off, we would flag that this would have likely gone to the supreme court regardless of Friday's ruling."

Citi said it was "almost certain" that the decision will be appealed to the Supreme Court of Canada, meaning it be another six to nine months before we hear if the Supreme Court is willing to hear the case - "we think it is likely to. If it does, it will probably take another 2-3 years before we hear the final outcome. However, we assume the Supreme Court will uphold the ruling again because of the TDRA and the legal context in Canada."

Canadian businesses accounts for about 4% of BAT's and JT's operating profit, Citi estimated, and 3% of PMI's, with BAT reckoned to have about £1bn of cash tied up in Canada currently, and PMI has about $1bn.

There are other provincial cases in Canada waiting in the wings, Citi cautioned, where the holding companies are being sued in addition to the Canadian subsidiaries, "and this makes them much more significant", with the first being the New Brunswick trial that is currently scheduled to start in November and is seeking up to C$25-60bn.

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Note 1: Prices and trades are provided by Digital Look Corporate Solutions and are delayed by at least 15 minutes.

Note 2: RiskGrade figures are provided by RiskMetrics.

 

BATS Market Data

Currency UK Pounds
Share Price 2,925.50p
Change Today 20.00p
% Change 0.69 %
52 Week High 4,222.50
52 Week Low 2,375.00
Volume 1,824,319
Shares Issued 2,293.80m
Market Cap 67,105m
Beta 0.02
RiskGrade 131

BATS Star Ratings

Compare performance with the sector and the market.
more star ratings
Key: vs Market vs Sector
Value Not Available
Price Trend
27.13% below the market average27.13% below the market average27.13% below the market average27.13% below the market average27.13% below the market average
100.00% above the sector average100.00% above the sector average100.00% above the sector average100.00% above the sector average100.00% above the sector average
Income
90.15% above the market average90.15% above the market average90.15% above the market average90.15% above the market average90.15% above the market average
100% below the sector average100% below the sector average100% below the sector average100% below the sector average100% below the sector average
Growth
53.19% above the market average53.19% above the market average53.19% above the market average53.19% above the market average53.19% above the market average
100.00% above the sector average100.00% above the sector average100.00% above the sector average100.00% above the sector average100.00% above the sector average

What The Brokers Say

Strong Buy 14
Buy 1
Neutral 4
Sell 1
Strong Sell 1
Total 21
buy
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BATS Dividends

  Latest Previous
  Q4 Q3
Ex-Div 24-Dec-19 03-Oct-19
Paid 06-Feb-20 14-Nov-19
Amount 50.75p 50.75p

Trades for 15-Jul-2019

Time Volume / Share Price
16:35 571,340 @ 2,925.50p
16:29 104 @ 2,932.00p
16:29 20 @ 2,932.00p
16:29 22 @ 2,932.00p
16:29 140 @ 2,932.50p

BATS Key Personnel

CEO Nicandro Durante
Finance Director Ben Stevens
Chair Richard Burrows
CEO Jack Bowles

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