BAT sees shares rise as cigarette profits surge

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BAT INDUSTRIES, the tobacco giant that owns the Eagle Star and Allied Dunbar insurance companies, marked National No Smoking Day yesterday by reporting record cigarette profits of pounds 1.3bn, a pounds 256m increase over 1991.

With Eagle Star eliminating the bulk of its losses and a strong performance from BAT's US insurance business, the group's pre-tax profits surged 68 per cent to pounds 1.64bn, comfortably ahead of most forecasts. The shares, held back in recent months by fears of a swingeing rise in US cigarette tax, rose 18p to 955p.

In keeping with its determination to pay dividend increases ahead of inflation, BAT is making a final payment of 22.6p, lifting the total by 11 per cent to 37.2p a share.

The fall of the Soviet bloc has led to an enormous increase in the size of the open tobacco market. BAT's exports, from the UK, the US, Germany and Brazil, have risen sharply. They grew by another 23 per cent last year to represent nearly a quarter of group tobacco sales of pounds 11.9bn. BAT is investing heavily in new plant in Southampton and Macon in the US to raise production capacity towards a possible 200 billion cigarettes a year.

Sir Patrick Sheehy, BAT's chairman, dismissed suggestions that US excise tax on cigarettes could rise to dollars 2 a packet, which would double the price of many brands. In a tobacco-growing country like the US, smokers would turn to making their own cigarettes or buying packs smuggled in across the country's lengthy borders.

Sir Patrick said cigarette makers could see the tax double from the present 24 cents, but this was unlikely before next year.

Brown & Williamson raised its share of the US tobacco market from 11.1 to 11.9 per cent, helped by the success of the GPC Approved brand in the very competitive cheap cigarettes market.

Eagle Star's continuing businesses returned to a profit of pounds 14.5m but the insurer is still dogged by heavy losses on mortgage guarantee and other financial insurances because of the ravaged property market. Continuing repossessions cost Eagle Star pounds 96.7m ( pounds 170m) and the discontinued financial insurances cost pounds 146m. This left Eagle Star, despite higher premiums and stricter underwriting, with a pounds 71.4m pre- tax loss - a big improvement on the pounds 394.3m debit recorded in 1991.

Farmers, BAT's unusual US insurer, increased profits by 14 per cent to pounds 408m, which Sir Patrick described as 'really outstanding'. Allied Dunbar, the UK life and pensions office, marked time with profits of pounds 123m.

The group is forecast to make pounds 2bn or more next year. Its debt- to-equity ratio stood at 55 per cent at its year-end.

BAT is proposing to split its shares to make them more affordable to smaller investors. Without a similar split in 1983, the shares would now cost about pounds 38 each.