Bottom Line: Unsettling news

NEWS that Rothmans International is stepping up the rationalisation of its European cigarette capacity is unsettling for its own shares and those of BAT Industries. After all, the company has been spending more than pounds 20m a year on routine shake-ups for some time and has only just closed a couple of factories.

The pounds 123.8m charge on capacity closures in Berlin and the Hague, with more to come once plans for sorting out its entire Belgian operation are finalised, seems to suggest strenuous if not desperate moves to boost returns from its existing plant.

Hoped-for cost savings of pounds 50m a year from the rationalisation may not fall through to profits if tough price competition persists in its European markets, accounting for 42 per cent of sales, where profits fell by 23 per cent.

At 369p, against 494p at the end of 1993, the shares are now more sensibly priced on a p/e of 10, assuming pounds 525m pre-tax, and a yield of 4.9 per cent and negligible US exposure is a bonus.