Market's view on British American Tobacco
Published on April 2024
- Fitch upgraded British American Tobacco (BAT) to BBB+ on 26 March 2024, indicating improved business prospects.
- BAT has formed a partnership with Chinese companies, creating CTBAT to enhance market presence in China, home to over 257 million smokers.
- Reports suggest BAT is undervalued with significant investment opportunities, supported by recent buybacks and the opening of a £30m Innovation Centre in Southampton aimed at boosting new category product revenues to £5 billion by 2025.
- The Biden administration temporarily halted the proposed ban on menthol cigarettes, a significant product segment for BAT, especially in the U.S. market.
- Concerns are raised about BAT’s decreasing cigarette market share in Western markets due to changing social habits and stricter regulations.
- BAT’s portfolio diversification includes a £150 million investment in cannabis in Canada and substantial market growth in Africa and India.
- BAT’s EBITDA remains strong, and debt reduction is ongoing, with buybacks planned for 2024/25.
- Dividends seem secure for the next two years, suggesting a stable cash flow for BAT with potential interest rate drops benefiting the company in the near future.
- There is discussion about the strategic logic behind BAT’s reduced scale in recent share buybacks, aiming to extend the program duration without impacting share prices significantly.