BAT payout lights up with 9% boost

BAT INDUSTRIES, the tobacco and financial services group, yesterday lifted some of the dividend gloom afflicting the stock market with a 9 per cent increase in its interim payment and the promise that the final will rise by at least as much.

The group is paying 14.6p a share, up from a pro-forma 13.4p last time, restated to reflect the fact that BAT is now paying dividends twice, rather than three times, a year. The increase sent the shares, which have already outperformed the market by more than 20 per cent this year, up a further 22p to 756p.

Sir Patrick Sheehy, chairman, said the rise reflected BAT's aim of delivering dividend increases 'well in excess of inflation'.

The payment accompanied a 55 per cent rise in pre-tax profits to pounds 645m in the six months to June. More than half the improvement was due to lower provisions against mortgage guarantee business by Eagle Star, which fell from pounds 121m last time to pounds 49m, leaving its losses pounds 128m lower at pounds 47m.

Sir Patrick said that repossessions are continuing at a 'fairly high level', although figures released by the Council of Mortgage Lenders yesterday showed that repossessions in the first half of the year fell 8 per cent to 35,700.

He added that the level of provisions required was falling as many current repossessions were purchased in 1990, when prices were lower than at the peak of the market. Eagle Star is negotiating new arrangements for mortgage indemnity with the building societies, which will impose stricter controls and force the societies to bear some of the losses. It has also cut the number of societies it deals with and increased premium rates by 75 per cent.

Overall, profits from the financial services business rose from pounds 56m to pounds 219m as Farmers, the US insurer, continued to boost premium income. Allied Dunbar's small company business was hit by the recession, but it still managed a 2 per cent increase in trading profits to pounds 63m.

Profits from tobacco rose 5.8 per cent to pounds 475m, at constant exchange rates. The improvement was despite a poor second quarter in the US, which was hit by smokers trading down and increased marketing spend.

Earnings per share more than doubled from 10.1p to 22.9p, helped by a reduction in the tax rate from 57.1 per cent to 41.9 per cent as Eagle Star's business improved.