26 July 2023
If you are covering British American Tobacco’s (BAT) latest financial results, please find below a comment from Chris Beckett, head of equity research at Quilter Cheviot:
"British American Tobacco (BAT) is demonstrating a solid, albeit unspectacular, performance in an industry currently undergoing significant transition. Despite a decline in volumes, BAT has managed to increase its prices, which, in essence, is what one would expect from a tobacco company capitalising on a consumer base addicted to the product. Their venture into alternative products like vaping and heated tobacco is seeing gradual improvement, particularly vaping which is performing better. However, with a 18% market share, BAT is somewhat trailing behind Philip Morris in the heated tobacco market.
"In spite of this second place, BAT's business guidance remains optimistic, projecting this segment of their business to become profitable within the year. They have an ambition to achieve £5 billion in sales by 2025 in this segment, and given their current trajectory, this appears plausible. While the company is in a state of transition, their progress is commendable, albeit not extraordinary.
"Currently, BAT's stock is valued at less than 7 times earnings, offering a 9% yield. These figures imply that even moderate performance can drive stock increases, making it an attractive proposition in a sector currently out of favour. BAT's financial strength was highlighted with positive comments about its cash flow and general capital position. Though a share buyback isn't immediately on the horizon, the potential for one in the future would be a positive step for the stock. All things considered, BAT represents an attractively priced opportunity in an unloved sector."
