In this article I am looking at why I believe British American Tobacco’s (LSE: BATS) (NYSE: BTI.US) stable of industry-leading brands should underpin stunning earnings growth.
Blistering brands primed to drive sales skywards
The impact of health concerns on smoking habits worldwide, combined with enduring pressure on consumers’ wallets, continues to hit demand for cigarettes and tobacco products hard. However, British American Tobacco has managed to keep revenues ticking higher despite these problems, and saw sales amongst its five ‘Global Drive Brands‘ labels rise an impressive 6.3% during January-March.
These brands helped push total group turnover 2% higher during the period at constant exchange rates. Rothmans led the way with volume growth of 27.6% during the first quarter, while Pall Mall and Dunhill rose 6.9% and 4.1% respectively and Kent rose 1.6%. Only Lucky Strike disappointed with a 1% decline.
British American Tobacco noted that the combined market share of these labels continued to advance during January-March, and 
the formidable pricing power of these brands — which enables it to lift prices to compensate for falling demand — is enabling it to grow turnover despite a challenging trading environment.
Promisingly, British American Tobacco noted in April’s interims that, even though conditions in its traditional Western remain difficult, that “emerging market volumes are increasing”. The tobacco giant sources almost three-quarters of total profit from developing markets, a promising omen for future earnings.
And the company is using its ‘Global Drive Brands’ to spearhead its expansion into such hot growth regions, already home to the lion’s share of the planet’s smokers. Indeed, British American Tobacco is ploughing vast sums into marketing activities in these geographies, a strategy which has helped Dunhill emerge as the fastest-growing brand in the massive Indonesian marketplace.
City analysts expect the firm to print a slight 1% earnings decline in 2014 before roaring back next year with a solid 9% improvement. These forecasts leave the tobacco manufacturer dealing on more-than-reasonable medium-term P/E multiples, with readouts clocking in at 16.9 for 2014 and 15 for 2015.
With the firm’s prestige brands leading the charge in lucrative emerging regions, I believe that British American Tobacco is well positioned to enjoy robust growth in coming years.
