BAT Shares Remain Moderately Undervalued Despite Rally

British American Tobacco reported first-half results that were broadly in line with our forecasts, and we are retaining our GBX 3,900 fair value estimate of the ordinary shares. After being in the doldrums since 2018, BAT and the tobacco group more broadly have outperformed the market significantly in 2022, with BAT up 23% as at the close of business on August 17, and the defensive nature of the tobacco business was clear in these results. The shares still offer modest upside, in our view, and with a current dividend yield of 6.7%, total returns could be fairly attractive in the medium term.