Bottom Line: Sheehy confident over Clinton's plan

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The Independent Online
SIR PATRICK SHEEHY, chairman of BAT Industries, seemed surprisingly confident yesterday about the likely outcome of President Clinton's proposal to levy a 75 cent excise duty increase on a packet of cigarettes.

The reprieve would be mild and not hugely significant in group terms - it could add up to pounds 100m to profit forecasts for next year - but good news in US tobacco is in short supply just now.

Recent months have seen a fresh waxing of the anti-smoking lobby in the US in which BAT has taken a public battering.

This has undermined the BAT share price, which was not helped by the dollars 1bn American Tobacco deal, despite its short-term attractions.

Half-year figures suggest that the US businesses, less than 10 per cent of group trading profits last year, are more robust than expected.

Price movements, in the wake of the Marlboro cuts last summer, have moved in favour of BAT's subsidiary, Brown & Williamson.

Cheaper brands, which predominate at B&W, have gone up in price while full-price brands have fallen, leading to better margins and significantly higher profits.

Brazil, typically, fell off a cliff as profits declined from pounds 80m to nothing in chaotic economic conditions. But the overall story from tobacco was firm, with underlying profits up by 8 per cent on volumes 4 per cent higher, including a 17 per cent gain in exports.

Apart from the bad news from Brazil the main reasons for a 9p fall to 434p in the BAT share price were an unexpectedly high pounds 56m disposal profit and insurance worries.

Financial services produced a useful 10 per cent rise in trading profits. Neither Eagle Star nor Allied Dunbar appeared to have suffered as much as others from the backlash against life and pensions salesmen.

None the less, signs of a weakening in UK premium rates at Eagle Star hit sentiment as did news that Farmers in the US was closing for new homeowner business in California.

But these are only changes at the margin at the moment. BAT, with an improving balance sheet pre-American Tobacco, is on course for more than pounds 2bn this year and twice dividend cover.

An 8 per cent interim dividend increase continues the company's solid support for shareholders but a yield of 7.2 per cent, although attractive, does not reflect the chairman's confidence in the future.

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