BAT 2006 Earnings Rise, Boosts Share Buy-Back

British American Tobacco, the world's No 2 cigarette maker, posted a 10% rise in 2006 earnings on Thursday and dampened talk it may make a big acquisition as it boosted its dividend and share buy-backs.

The London-based group, which makes Lucky Strike, Kent, Dunhill and Pall Mall cigarettes, said 2006 adjusted earnings per share rose to 98.12 pence ($1.92), in line with analysts' forecasts of 96.6-100.0p. BAT raised its 2006 dividend to shareholders by 19% to 55.90p a share, and increased its share back-buy programme to 750 million pounds for 2007 from 500 million pounds in 2006.

The news sent BAT shares up 4.4% at 16.17 pounds by, making them the biggest gainer in the FTSE 100 Index. The company said the rise in the dividend and in the share buyback programme followed a review of its capital structure, and analysts added this appeared to reinforce BAT's view that it sees most potential targets as being too highly valued.

The tobacco world was sparked into life in December when world No 3 producer Japan Tobacco agreed a 7.5 billion pound bid for the No 5, Britain's Gallaher Group, prompting talk over how other big tobacco groups like BAT might respond. "The results are broadly in line, but the dividend and buyback increase will grab the headlines," said industry analyst Jonathan Fell at investment bank Deutsche Bank.

The world's No 2 cigarette company after Altria's PhilipMorris reported like-for-like cigarette volumes rose 2% in 2006, and the volumes of its four top global cigarette brands increased by 17%. "2006 has been a good year and I believe we can look ahead with confidence in our ability to achieve further growth and value for shareholders," said Chairman Jan du Plessis in a results statement.

BAT's underlying cigarette volume rise of 2% compared to its 1 to 1-1/2% target range, while earnings growth beat the company's own medium term "high single-digit" percentage annual earnings growth target.

BAT shares have outperformed the FTSE 100 index by 8% over the last twelve months, and closed on Wednesday at 15.49 pounds, up from a low of 13.93 pounds in mid-November.

BAT shares trade on 14.9 times forecast 2007 earnings, behind Imperial Tobacco on 16.5 and Altadis's 16.4 as the two latter groups have gained more from the current takeover talk.