Investors who would want to buy an entry minimum of 100 shares on the BATU counter would pay Shs1.5m, which is high compared to other counters. Photo / Michael Kakumirizi
British American Tobacco Uganda (BATU), a cigarette retailer, has been listed on the Uganda Securities Exchange (USE) since 2000. But in recent years, its stock has fallen into a slumber.
No trades have occurred in 2024 or 2025. Of the small 10 percent free float - its 49.1 million listed shares - just 0.01 percent have changed hands since 2018.
So, what has gone wrong? A price tag out of touch with reality. Despite fluctuations in BATU’s performance, the stock price has barely moved.
It’s been locked at Shs15, 000 since 2023, after a large shareholder’s exit halved it from Shs30,000 in the same year. ,
BATU went public in 2000 with a Shs1,000 initial public offer (IPO) share price. It delivered strong dividends and steady growth for years, but about seven years ago, cracks began to show.
Dividends became erratic. From two interim payouts, returns dwindled, investor confidence wobbled and bids vanished.
Today, digital investment firm, Level Africa, for instance, has been sitting on BATU sell offers worth Shs2.7b – but there have been no buyers since 2023.
Existing shareholders are stuck, while potential investors are walking away.
Denis Kizito, the Capital Markets Authority director of market supervision, agrees that BATU’s share price is steep by ordinary standards.
“Buying the minimum 100 shares costs Shs1.5m - a tough sell for many Ugandans,” he says.
But there is more than price at play. “There are ethical concerns,” he adds, “Not everyone wants to invest in a cigarette company. And many don’t even understand what BATU does.”
In short, a sky-high price and moral discomfort have turned BATU into one of the quietest stocks at USE.
What do the numbers show?
Over the past five years, BATU’s financials reveal a company steady in operations but out of step with valuation logic.
Take Earnings per Share (EPS) - a measure of profitability. In 2020, BATU’s EPS was at Shs372.8, but that nearly halved to Shs200.8 in 2021, dipped in 2022 (Shs180.9), then modestly recovered to Shs209.99 in 2024.
Profitability remains, but it’s in decline from the 2020 peak. Now, compare that to its market price. It held steady at Shs30,000 in 2020 and 2021 - despite a drop in earnings - and only corrected to Shs15,000 in 2022 when a big investor exited. Since then, it hasn’t moved, making the stock appear detached from performance reality.
This disconnect shows up sharply in the Price-to-Earnings (P/E) ratio, which tells us how much investors are paying for every shilling of earnings.
BATU’s P/E stood at a sky-high 80.47x (x for times) in 2020, ballooned to 149.40x in 2021, and even after the price correction, remained steep at 71.43x in 2024. That is far above regional and industry norms.
“Investors are paying over 70 times the company’s annual earnings, despite stagnant growth. That is a clear signal of overvaluation,” says a research analysis by brokerage firm Crested Capital.
Then there's the Net Asset Value (NAV) - or how much each share is backed by the company’s tangible assets. It declined from Shs981.58 in 2020 to Shs821.89 in 2024, while the Price-to-Book (P/B) ratio, which compares market price to asset value, remained high, peaking at 38.21x in 2021 and easing to 18.25x in 2024. In essence, the market is valuing BATU far below what its balance sheet says.
Shareholder value
Dividends are still coming, but not sweet enough. BATU’s dividend per share fell from Shs406 in 2020 to Shs181 in 2023, with a slight recovery to Shs210 in 2024.
The dividend yield- the return investors get from dividends - has hovered between 1.2 percent and 1.4 percent, well below USE’s average of 10.2 percent, and pales in comparison to 15 percent-plus yields from risk-free bonds.
Bottom line: Even dividend hunters are not getting the juice, which thus tells of fundamentals that don’t support the price, while returns don’t justify the risk.
What does this all indicate?
BATU’s share price defies valuation norms. The company may be stable and profitable, but the sluggish earnings growth doesn’t support the lofty Price-to-Earnings and Price-to-Book ratios.
For instance, BATU’s Price-to-Book ratio sits at 18.25, while regional peers such as BAT Kenya, Egypt’s Eastern Tobacco, and Greece’s Karelia average around 7.
Across the board - whether you look at profits, assets, or cash flow - BATU’s stock looks overpriced, as per the company’s financials. And if the market ever reconnects price with reality, a sharp correction could materialise.
What is BATU worth?
Crested Capital ran the numbers using three valuation models, and all point to one thing: An overpriced stock.
Dividend Discount Model: Based on projected dividends and a 23.14 percent return, BATU is valued at Shs4,954.93 - a 67 percent discount below its Shs15,000 price.
Earnings before interest, taxes, depreciation, and amortisation (EBITDA) Multiple: Benchmarking against telecom IPOs such as MTN and Airtel (despite their faster growth) yields a value of Shs2,318, and that is a bit generous given BATU’s slow-growth cigarette business.
Peer Comparison: Stack BATU against BAT Kenya, Karelia (Greece), and Eastern Tobacco (Egypt), and the overpricing is stark - Price-to-Book ratio: 2.9x above average and enterprise value over EBITDA, which is 2.4x above.
The above suggests a fair value of just Shs2,048.31. Bottom line: Every model pegs BATU’s fair value at between Shs2,000 and Shs5,000, a 66 percent to 86 percent discount from the current price.
Who else has valued?
It’s not just Crested Capital working the numbers. At least three other brokerage firms, Monitor understands, have pegged BATU’s fair value at between Shs6,000 and Shs8,000 since last year, lower than the current Shs15,000 price tag.
Why hasn’t the price moved?
When asked in December last year about the valuation gap, Paul Bwiso, the USE chief executive officer, dismissed the idea that something was broken.
“I don’t think there is a problem with BATU’s stock price. If you have done a valuation, bring it to the market,” he said, noting that USE permits price adjustments on inactive stocks every quarter.
“If a stock hasn’t traded, brokers can propose a new price. Do you have a willing buyer or seller? Post the bid, and it will adjust depending on market forces,” he added.
Locked and listed
Technically, if a stock hasn’t traded in ages, that is reason enough for brokers to ask USE to loosen the leash.
Right now, prices on the USE can only swing within a 10 percent band, up or down, from the last closing.
But for illiquid stocks, that rule can be relaxed. Brokers just need to make the case, just like what happens when new financials are published and fresh investor interest is expected.
But BATU’s inertia runs deeper than technicalities, given that majority of BATU shares are held by one institutional shareholder - BAT Group and some private equity firms in London.
When BATU went public in 2000, it only listed 10 percent, then held by government.
Today, BATU has around 300 shareholders, holding at least 49.1 million shares, valued at Shs736b – which is just a drop compared to Stanbic’s 51 billion, Airtel’s 40 billion, or MTN’s 22 billion shares.
What could be the solution?
There is another layer to BATU’s valuation puzzle. Right now, it holds the title of most expensive stock on the USE.
If you want to buy in, you will need not less than Shs1.5m for a minimum of 100 shares.
Compare this to MTN, which at Shs270 per share (by Wednesday, a minimum trade would cost you Shs27,000, while Airtel would be around Shs9,000.
The pricing gulf is exactly why Abraham Banaddawa, the Level Africa founder and chief executive officer, thinks a stock split could breathe life into BATU’s stagnant trading. Split the stock five-for-one, for instance, he says, then use the company’s retained earnings - BATU is profitable, after all - to buy back 80 percent of the shares.
That would leave 20 percent in circulation, but with a far lower price point, potentially increasing both liquidity and trading.
“The goal is to improve the dividend yield. You first improve the share price, then liquidity, and finally, the dividend payout,” Banaddawa says.
The strategy isn’t new. In 2006, Uganda Clays did a share split, which split its shares by a ratio of 1:10 to enhance liquidity.
At the global stage, Apple, one of the most valuable companies, has split its stock five times since going public in 1980.
Sleek in theory, thorny in practice
On paper, the proposals – a share split, buy back shares, drive up liquidity – sound like sweet fixes, but real-world implementation is messier.
BATU’s board knows these ideas. Yet for years, despite having the tools, they have not budged, nor has USE initiated the conversations.
It’s a catch-22; if USE pushes too hard, BATU might opt for the worst – delist, which could be a blow for the exchange that can’t afford.
Adding to the complexity, BATU doesn’t own tobacco farms or a production line in Uganda - it sources from outgrowers and exports to Kenya from where the products are made and returned to Uganda for retailing.
However, even with the existing complexities, Banaddawa believes a share split is not just viable - it’s necessary – but cautions it should be phased.
