Interactive Investor

Insider: backing this FTSE 100 income stock

4th May 2021 09:28

Graeme Evans from interactive investor


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Despite some issues, the leadership team continues to buy, but there’s selling at a well-known small-cap.

British American Tobacco (LSE:BATS) shares worth £40,000 have been bought by its chief marketing officer in the week the FTSE 100-listed stock revealed trading progress so far in 2021.

Kingsley Wheaton has been a member of the management team since 2012, having joined tobacco company Rothmans in 1996 before it was acquired by BAT in 1999.

His purchase was made on Thursday at prices of around 2,629p, within the 2,900p and 2,450p range the company has been stuck in during a lacklustre few months for the FTSE 100 index.

The threat of litigation and US-led regulation continues to be an overhang for the stock, but from an operational perspective the company says it continues to perform well after building on the “accelerating momentum” seen in the second half of last year.

The AGM statement of chairman Richard Burrows last week expressed confidence in the company's 2021 guidance, including constant currency revenue growth of between 3% and 5% and progress in new categories towards a target of £5 billion revenues by 2025.

BAT is also committed to a dividend policy worth 65% of earnings per share (EPS), which will mean four quarterly instalments of 53.9p for shareholders this year, starting with the first payment on 12 May. This represents a total improvement of 2.5% on the previous year and has contributed to a punchy yield of more than 7% in an otherwise tough income environment.

The AGM update from BAT followed speculation that US president Joe Biden is considering a reduction in the amount of nicotine in cigarettes to levels no longer considered addictive.

The health watchdog, the US Food & Drug Administration, is also said to be mulling a ban on menthol cigarettes but Burrows told shareholders that any such regulation would be highly complex and could take many years to implement.

The US developments serve to highlight the need to quicken the pace of the roll out of potentially less harmful products such as vapour and heated tobacco.

 BAT's annual results showed that it increased the number of consumers of non-combustible products by three million to 13.5 million for revenues of £1.4 billion, having boosted investment in this area by a further £426 million in the period. 

Wheaton led the company's next generation products division between 2015 and 2018 before becoming chief marketing officer in 2019. He says there's probably never been a more exciting time to hold the role, given the levels of R&D, innovation and consumer insight going into the company's “Building a Better Tomorrow” transformational strategy.

He said: “Alongside this, of course, we have a world-class portfolio of strategic cigarette brands that has consistently grown market share year-on-year by delivering for our consumers across segments.

“No wonder I am as excited to come to work today as I was when I first joined BAT more than two decades ago!” Wheaton told the company's website.

His purchase follows the £300,000 acquisition of shares by finance and transformation director Tadeu Marroco at the end of March, when the price of BAT shares was 2,830p.

Stagecoach share sale begins

A 10-year plan for the families of Stagecoach (LSE:SGC) founders Sir Brian Souter and Dame Ann Gloag to reduce their 27% stake in the public transport company to 5% was launched last week.

Sir Brian, who intends to remain a non-executive director, founded the business with his sister more than 40 years ago, but they are now aged 66 and 78 respectively.

The first steps in winding down the shareholdings were taken last week with the disposal of more than 11.5 million shares at a price of 94p, a move generating £10.9 million. This has left the families with 25% of the company, worth about £125 million after an 8% fall in the Stagecoach valuation following Wednesday's announcement.

The shares remain 35% lower than before the start of Covid-19 restrictions, with the most recent results from the UK's biggest bus and coach operator showing earnings per share of just 0.1p for the six months to 31 October compared with 10p a year earlier.

The group has bus operations in London, Manchester, Liverpool and several other major cities, as well as the megabus UK coach service.

Sir Brian, who was chief executive of the company until 2013 and retired as chairman in December 2019, said: “We remain significant long-term shareholders in Stagecoach and remain supportive of the company’s strategy and management team.”

He is also happy to continue as a non-executive director: “I look forward to supporting the company as we recover from the impact of Covid-19 and play our part in helping government meet its objectives to grow bus patronage and tackle climate change in the years ahead.”

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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