View from City Road: Business in the hands of youth

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The Independent Online
IT IS not just the policemen who are getting younger these days. Chief executives are too. At 38, Archie Norman at Asda may still be exceptional, but Martin Broughton, 45, who is taking over as chief executive of BAT Industries, joins a select group that includes Derek Wanless of National Westminster, Stephen Walls at Albert Fisher and Greg Hutchings at Tomkins, all of whom are in their mid-forties and running sizeable companies.

Mr Broughton has been well groomed for the job, with experience in tobacco, financial services and other areas of BAT's once sprawling empire as he speedily climbed the ranks. Though there might be worries that he has not worked in other companies, his overseas experience should make up for that.

His priorities are to keep profits and the total return to shareholders growing. Given that profits halved to less than pounds 1bn in 1990 and have yet to recover fully, this may come as something of a relief to shareholders. The company is expected to announce in March that profits recovered partially to more than than pounds 1.5bn last year - presumably his appointment means there are no new disasters on the financial services side - and they look set to return to their peak levels of more than pounds 2bn this year.

Investors have little to complain about, as the shares have outperformed the rest of the market by 30 per cent in the past year and by 50 per cent since Lord Rothschild, Sir James Goldsmith and Kerry Packer launched their unsuccessful bid in 1989. Meanwhile, dividends have grown.

Martin Broughton's team will be hard- pressed to keep up that sort of record. But it will be helped by a belated change in the perception of the tobacco business, which instead of being viewed as a cash cow is now seen as a growth business enjoying booming sales in China and Eastern Europe.

The financial services side - which includes Eagle Star, Allied Dunbar and Farmers - still needs attention. Eagle Star recently had a cash injection from its parent, which Mr Broughton hopes will see it through, but much depends on the speed of a pick-up in the UK market. Mr Broughton expects to make an acquisition in financial services within five years.

Shareholders are taking two main risks - another disaster of the kind that disabled Eagle Star, and a ban on cigarrette advertising in one of its major markets. But those are already discounted in the share price which, at 972p, down 6p yesterday, is trading on a substantial earnings discount and yield premium to the rest of the market. Buy.