April was not an easy month for the largest London-listed tobacco stocks. As I observed at the time it was a US tobacco market shocker for Imperial Brands (IMB) and British American Tobacco (BATS) back then, although I remained optimistic on both stocks. Since then the shares have recovered and, after a positive recent update from the former, how has BAT got on with its update now?
Its comments observed that it is ‘creating brands of the future and...added +1.4 million non-combustible product consumers in Q1, to reach a total of 14.9 million’. In practical terms what this will mean is full year 2021 numbers showing an above 5% rise in constant currency revenue, ‘mid-single digit adjusted diluted constant currency EPS growth’ and ‘leverage reducing to around c.3x adjusted net debt / adjusted EBITDA by year end’. It sounds as if we will get more formal numbers out in July, but given the stock already is trading at a barely x10 EV:ebit multiple whilst offering a 9%+ dividend, hopes for FY21 and beyond will improve.
It is notable that BAT has a target of ‘£5 billion New Category revenue by 2025’, along with ‘50 million consumers of non-combustible products and carbon neutrality across our own operations by 2030’. Patently, the tobacco business is changing. Last week I read an article which conserved the notion ‘why banning tobacco could actually be a boon for smokers’. All of this is about the change of the sector. Clearly fewer individuals are smoking cigarettes for a variety of reasons, but companies such as BAT are talking all the time about how the demand for a broader range of products is still apparent. It observed that its ‘New Category products’ are now sold in 74 markets across 53 countries and which it sees continued growth prospects over the rest of the 2020s and into the 2030s. Consequently it observes that its current growth products such as Vuse ‘independently confirmed as the first global carbon neutral vape brand’ and unsurprisingly now leads the category in 16 states in the US.
As noted in April, there is still a lot of debate about the tobacco sector, but my observation would be that an ability to offer different projects in a free choice society is still going to have an angle. BAT also noted that ‘in 2021, we set additional stretching targets, which include achieving carbon neutrality across our value chain by 2050 and 100% renewable electricity in operations sites by 2030’. Personally I would never smoke myself but in my opinion it should not be banned either (and let’s face it governments love the tax revenue side too). No surprise that BAT shares are up and my view is that they remain a BUY with a target 20% plus above the current 2820p share price. Such share price appreciation should also be aided by the observation that ‘Refinitiv ranking BAT as the third highest ESG-rated FTSE100 company, the Financial Times naming us as Climate and Diversity leaders, and being recognised as a Global Top Employer for the fourth year in a row by the Top Employers Institute’. Such methods are not an individually attractive way of appraising a share but many fund managers will be utilising them over the next few years...which is another reason to be long this stock/sector.
Filed under: British American Tobacco, Remote Monitored Systems, Amigo, BT, Julie Meyer, Bitcoin
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