Analyst Note
| Philip Gorham, CFA, FRM |British American Tobacco, or BAT, disclosed in a preclose trading update that the first half is tracking more or less in line with our expectations. The only surprise was a slightly stronger performance in the United States, where BAT has taken share. Emerging markets appear to be very challenged, however, and we are tweaking our estimates lower to account for the potential of a temporarily higher cessation rate in certain markets. Accordingly, we are lowering our fair value estimate to GBX 4,300 from GBX 4,500. Nevertheless, we continue to see significant upside to BAT and in tobacco generally, and we think both the wide moat rating and business model remain intact.