British American Tobacco PLC

BTI Details:

British American Tobacco PLC (NYSE: BTI) is a British multinational corporation that produces and sells cigarettes, tobacco, and other nicotine-containing products. Dunhill, Kent, Lucky Strike, Pall Mall, Rothmans Neo, Vuse, Newport, Camel, and Natural American Spirit are among the company's leading brands. BTI has 2.29 billion American Depository Shares (ADS) listed and outstanding (each ADS representing one ordinary shares).

Latest News:

• Launched Virtual R&D Visitor Center: BTI announced on January 19, 2022, that it had launched a virtual R&D Visitor Experience, an online tour of its worldwide Research & Development (R&D) hub in Southampton, UK, that allows individuals to explore its cutting-edge science and innovation. The experience builds on its open and transparent approach to the research underlying its low-risk product line and efforts beyond nicotine.
• Foraying into Biotech Innovation: On January 7, 2022, the firm announced the formation of KBio Holdings Limited (KBio) to speed the research, development, and production of innovative medicines. KBio will draw on the existing and extensive plant-based technology capabilities of BAT, BTI's parent company, and Kentucky BioProcessing Inc (KBP), a BAT-owned US plant biologics firm.

H1FY21 Results:

• Flat Revenues: The company reported a slight decrease of 0.78% in total revenues to GBP 12.17 billion during H1FY21 (ended June 30, 2021) compared to GBP 12.27 billion during H1FY20.
• Slight decline in Net Income: BTI's net income decreased to GBP 3.33 billion during H1FY21 from GBP 3.54 billion during H1FY20.
• Cash Position and Debt Position: As of June 30, 2021, its cash and cash equivalents (including marketable investments) were GBP 3.35 billion, with a total debt of GBP 45.01 billion.

Key Risks:

• Regulatory & Taxation Risk: Tobacco makers are forced to conform with various regulatory frameworks worldwide, making the business highly regulated. These limits may limit BTI's ability to promote its products, putting its company and financial health at risk. Furthermore, BTI is vulnerable to unanticipated and significant increases in tobacco and nicotine-related taxes in its core markets, which could substantially impact its revenues and results of operations.

Outlook:

• Revenue Estimates: BTI forecasts revenue to expand by more than 5% in FY21, owing to robust growth in New Category products and a better global combustible volume outlook, fueled by emerging market recovery.
• Dividend Estimates: The company will maintain its dividend payout ratio of 65% and dividend growth in GBP terms while investing in business transformation and deleveraging the balance sheet to achieve a 3x adjusted net debt to adjusted EBITDA ratio by year's end. 

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

BTI' share price has risen 26.16% in the past three months. We have valued the stock using the Price/Earnings multiple-based relative valuation methodology and arrived at a target price of USD 46.00. In addition, the company has an industry-leading profit profile, giving its stockholders a major competitive advantage.

Considering the company's proven track record, market dominance in the tobacco industry, launched R&D center, current valuation, and associated risks, we recommend a "Hold" rating on the stock at the current price of USD 43.62, down 0.27% as of February 04, 2022, at 10:12 AM ET.

Three-Year Technical Price Chart (February 04, 2022, 10:12 AM ET). Analysis by Kalkine Group

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

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