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British American Tobacco PLC BATS

Morningstar Rating
GBX 2,369.00 −1.50 (0.06%)
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Company Report

BAT Earnings: New Categories Achieve Profitability as Management Unveils Capital Allocation Options

Our thesis on British American Tobacco is that while the stock is materially undervalued, the company needs to sharpen its operational focus to accelerate internal cash flow generation and implement a clear capital allocation strategy, whether that is to return capital to shareholders or to scale its investments in some of the emerging nicotine categories. Preliminary 2023 results were slightly below our forecasts, but BAT's announcement that it will consider partially liquidating its stake in ITC is an encouraging step in the direction of improving shareholder returns, in our opinion. We are reiterating our wide moat rating and our GBX 3,900 fair value estimate. Even after the stock gapped up in trading after the announcement, there is significant upside to our valuation, and we are warming to the idea that new CEO Tadeu Marroco's operational and capital allocation strategies could unlock that upside.

Price vs Fair Value

BATS is trading within a range we consider fairly valued.
Price
GBX 2,370.50
Fair Value
GBX 1,756.00
Uncertainty
Medium
1-Star Price
GBX 4,279.00
5-Star Price
GBX 2,274.00
Economic Moat
Xhtk
Capital Allocation
Cbsnhkb

Bulls Say, Bears Say

Bulls

The consolidation of Reynolds America gives BAT more exposure to the U.S. market, a high-margin market with headroom to raise prices and optionality in the heated tobacco market.

Bears

BAT has lost first-mover advantage to PMI in heated tobacco, a promising tobacco alternative to cigarettes.

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News

Trading Information

Previous Close Price
GBX 2,370.50
Day Range
GBX 2,363.502,382.00
52-Week Range
GBX 2,233.003,242.50
Bid/Ask
GBX 2,368.50 / GBX 2,369.00
Market Cap
GBX 5.30 Tril
Volume/Avg
432,986 / 5.1 Mil

Key Statistics

Price/Earnings (Normalized)
6.34
Price/Sales
1.96
Dividend Yield (Trailing)
9.74%
Dividend Yield (Forward)
9.94%
Total Yield
9.95%

Company Profile

Following the acquisition of Reynolds American, British American Tobacco is neck-and-neck with Philip Morris International to be the largest listed Global tobacco company--slightly larger than PMI on net revenue, but slightly smaller on total tobacco volume. British American's Global Drive Brands are Dunhill, Kent, Pall Mall, Lucky Strike, and Rothmans, and it also owns Newport and Camel in the U.S. The firm also sells vapor e-cigarettes, primarily its Vuse brand, heated tobacco, with Glo, as well Velo modern oral tobacco products. The company holds 29% of ITC Limited, the leading Indian cigarette-maker.
Sector
Consumer Defensive
Industry
Tobacco
Stock Style Box
Large Value
Total Number of Employees
46,725

Competitors

Valuation

Metric
BATS
2914
PM
Price/Earnings (Normalized)
6.3413.1314.85
Price/Book Value
1.051.77
Price/Sales
1.962.473.94
Price/Cash Flow
5.6811.5213.19
Price/Earnings
BATS
2914
PM

Financial Strength

Metric
BATS
2914
PM
Quick Ratio
0.430.970.28
Current Ratio
0.911.910.75
Interest Coverage
−8.146.727.54
Quick Ratio
BATS
2914
PM

Profitability

Metric
BATS
2914
PM
Return on Assets (Normalized)
6.03%7.20%14.43%
Return on Equity (Normalized)
12.92%13.03%
Return on Invested Capital (Normalized)
9.03%11.09%25.29%
Return on Assets
BATS
2914
PM
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