Cube Report (9 Dec 2020) – BATS shows continued resilience

Cube Report (9 Dec 2020) – BATS shows continued resilience

Morning folks,

Today I’m particularly interested in British American Tobacco (BATS) (in which I have a long position). We also have announcements from Balfour Beatty, Howden Joinery and G4S.


British American Tobacco

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Market cap £66.6 billion
RNS Second Half Pre-Close Trading Update
Writer disclosure Long BATS

I’ve been enjoying some great dividends from this stock, and trying not to worry too much about the share price.

It’s important to remember that everybody has their own goals and objectives: while I wouldn’t say no to a 100-bagger in my portfolio, I also appreciate having some yield. So I don’t mind having a heavy dividend payer, like this one. The yield at BATS is currently c. 7%.

This update includes a nice opening paragraph from Jack Bowles, reinforcing the emphasis on healthier outcomes for smokers:

Reducing the health impact of our business through providing a range of enjoyable and less risky products is the greatest contribution we can make to society. We continue to be clear that combustible cigarettes pose serious health risks, and the only way to avoid these risks is not to start or to quit. BAT encourages those who would otherwise continue to smoke to switch completely to scientifically substantiated reduced risk alternatives. We are growing our New Category business as fast as possible and we are proud to now have around 13 million non-combustible product consumers.

As for the financials?

  • 2020 guidance is maintained (the consensus EPS forecast is 330.7p)
  • FX-adjusted revenue growth to come in at the high end of the 1%-3% range.
  • The Covid-induced revenue headwind and the tobacco industry’s volume decline are both marginally lower than expected.
  • “Mid-single figure constant currency adjusted diluted EPS growth” – no change.

Balance sheet – no change to the target. Adjusted nbet debt to adjusted EBITDA should be around 3x by the end of 2021. On a personal note, I wouldn’t mind dividends being reduced slightly, to enable faster deleveraging.

The company is committed to a 65% dividend payout ratio.

My view

I’m hardly going to change my view on this after an in-line trading update. But there are a few highlights that I’m particularly pleased by.

Vuse/vype described as “the fastest growing international vapour brand” – the “No. 1 in device sales in all Top 5 markets with a device share in excess of 50%”. Said to be closing in on the top brand in the US (Juul). Top brand in Canada.

Traditional tobacco surprisingly stable. US industry volumes flat.

Cash conversion remains remarkably good at 90%+ of adjusted profit from operations.

So yes, I am talking my own book, but I’m still a happy holder. Can’t complain about performance at all. Can only complain that the share price doesn’t give it much credit – I’m still thinking about increasing my participation in this industry.


Balfour Beatty

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Market cap £1.9 billion
RNS Balfour Beatty Trading Update
Writer disclosure No position.

Construction stocks aren’t the type of thing I like to own, but they can be a bellwether for economic activity.

I’m pleased to note that all of Balfour’s sites are open.

Full-year results are shaping up in line with expectations, after a steady recovery in H2 2020.

Key points:

  • order book to end the year at c. £17 billion (up from £14.3 billion at the end of 2019). HS2 is a big factor here.
  • revenue in line with 2019 (£8.4 billion).
  • average monthly net cash at £500 million, ahead of guidance (£430 – £460 million).
  • undrawn £375 million RCF.

There’s a discussion being had with the US Department of Justice, relating to alleged falsified maintenance logs at US military housing. BBY hopes to resolve it in H1 2021.

Dividend – expecting to pay a dividend for 2020. And buy back £50 million of its own shares. Nice!


Balfour Beatty continues to expect that the earnings-based businesses will report a more normalised operating profit in 2021, broadly in line with 2019. 

EPS will be lower this year, but is forecast by analysts to recover to 21.2p in 2021. That makes for a P/E ratio of just below 13x.

My view

Another decent performance to report on this morning. If you have faith in 2021 being “normal”, this looks reasonably priced with reasonable prospects.

As I said at the top, I don’t normally invest in construction shares. However, the prospect of healthy-sized buybacks makes this more attractive to me than the average construction share!


Howden Joinery

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Market cap £4.1 billion
RNS Trading Statement
Writer disclosure No position.

A succinct update.

For 1st Nov-28th Nov (“Period 12”), UK revenue grew strongly against the same period last year.

Year-to-date revenue is still lagging: 5.1% below 2019.

However, the strong performance in Period 12 means that FY 2020 PBT is now expected to be around 10% above the top end of current analyst forecasts.

These forecasts are given as £123 – £152 million: so we are in store of PBT of around £167 million.

I note that PBT last year was £260 million. But the market is very enthusiastic – looks like it’s pricing in a full recovery here before too long?



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Market cap £4.0 billion
RNS Rejection of GardaWorld’s revised offer
Writer disclosure No position.

At 7am, G4S announced that it was turning down Gardaworld’s offer of 235p per share (increased from 190p).

Instead, it recommended an offer from Allied Universal at 245p.

And then this afternoon, Gardaworld announced:

GardaWorld confirms that, pursuant to the reservations to the Final Offer set out in the Final Offer Document published on 2 December 2020, the no increase statement regarding the offer price is no longer in effect and has been set aside.

Is the bidding war only hotting up?

With the shares trading at 256p, it looks like more is expected.

A lovely position for GFS shareholders to be in – well done to anybody who held this through the entire pandemic!



Calling it a day there, cheers!

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