British American Tobacco Plc

British American Tobacco Plc (LON: BATS) is a London based multi-category consumer goods companies in the world with core business focus around tobacco.

The group will announce its interim results on 31^st July 2020.

Recent News
On 12^th March 2020, the group has signed a new multi-currency revolving credit facility of £6 billion.

Financial Highlights – Financial Year 2019 (31st December 2019, £, million)
For the financial year ending 31st December 2019, on a reported basis, the company’s revenue surged by 5.7 per cent to GBP 25,877 million, with more than 67 per cent of the growth driven by combustibles and supported by higher revenue in both Traditional Oral and New Categories. In the financial year 2019, despite US vapour slowdown, the revenue from new categories surged by 36.9 per cent to GBP 1,214 million. New Categories revenue, excluding US vapour, increased by 39 per cent at constant rates. Based on a current rate, the adjusted margin surged by 50bps to 43.1 per cent in FY19. The adjusted diluted earnings per share for the financial year 2019 surged by 8.4 per cent to 321.6 pence at constant rates of exchange. The adjusted net debt reduced to GBP 41,726 million in 2019 versus GBP 43,407 million in FY2018. The dividend per share increased by 3.6 per cent to 210.4 pence for the period.

Share Price Performance

Daily Chart as of March 26^th, 2020, before the market close (Source: Thomson Reuters)

British American Tobacco Plc shares were trading at GBX 2,577.00 at the time of writing before the market close (at 10:41 AM GMT) on 26^th March 2020 and down by 0.02% versus the previous day closing price. Stock's 52 weeks High is GBX 3,507.00 and Low is GBX 2,249.00.

Valuation Methodology
 
*Peers: Kerry Group Plc, Britvic Plc, Tate & Lyle Plc and Unilever Plc.

Conclusion
The companyexpect international industry cigarette and THP (Tobacco Heating Products) volume to be tumbled 4%, with US industry volume down 5%, in 2020.  On constant rates of exchange basis, the adjusted revenue growth will be in the range of 3%-5%, together with continued improvement in operating margin and further growth in New Categories towards the financial year 2024 ambition of £5 billion in revenue. In FY2020, the operating cash conversion target will be more than 90%, and adjusted net debt to EBITDA will be 3.2x. The group based on its resilient business and has a well-diversified supply chain, which prevents the business against COVID-19 outbreak.

Based on the decent prospects, which are supported by valuation done using the above method, we have given a “Buy” recommendation at the current price of GBX 2,493.00 (as on 26^th March 2020, before the market close at 8:23 AM GMT) with single-digit upside potential based 8.00x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).
 

Tullow Oil Plc

Tullow Oil Plc (LON: TLW) is a leading oil & gas exploration and production company. The company manages production activities and developments across Africa, South America, Europe and Kenya.

The group will announce its AGM trading update on 23^rd April 2020.

Financial Highlights – Financial Year 2019 (31^st December 2019, USD, million)

(Source: Annual Report, Company Website)
 
For the financial year ending 31^st December 2019, due to lower realised prices of oil, the group’s revenue declined to USD 1,683 million versus USD 1,859 million in FY2018. The gross profit declined to USD 759 million in FY2019 as against USD 1,082 million in the financial year 2018. Due to higher operating costs for the period, the group reported an operating loss of USD 1,385 million in FY2019 versus an operating profit of USD 528 million in FY2018. The LBT (loss before loss) stood at USD 1,653 million in FY2019 versus a PBT (profit before tax) of USD 261 million in FY2018. The reported LAT (loss after tax) stood at USD 1,694 million in FY2019 versus a PAT (profit after tax) of USD 85 million in FY2018. The basic loss per share stood at 120.8 cents in FY2019 versus basic earnings per share of 6.1 cents in FY2018.

Share Price Performance

Daily Chart as of March 26^th, 2020, before the market close (Source: Thomson Reuters)

Tullow Oil Plc shares were trading at GBX 12.20 at the time of writing before the market close (at 10:57 AM GMT) on 26^th March 2020 and down by 1.05% versus the previous day closing price. Stock's 52 weeks High is GBX 254.71 and Low is GBX 7.17.

Valuation Methodology
 
*Peers: Premier Oil Plc, Genel Energy Plc, Petrofac Ltd, Serica Energy Plc and IGas Energy Plc

*Currency exchange rate taken for 1 USD = 0.83874 GBP.

Conclusion
The company’s financial performance has declined during the fiscal year 2019. The company is facing multiple internal as well as external issues such as a change in management, economic factors, etc. which are hindering its growth. Other risks and uncertainties include financial risk, liquidity risk, economic and political risk and cyber risk, which could affect the overall business of the company. With positive implications for both the Orinduik and Kanuku blocks, the Carapa-1 result is an essential exploration outcome. While reservoir development and net pay at this site are lower than the pre-drill estimates, the company is generating enough free cash for the growth of the business of the company. The company’s fundamentals have remained intact, and it retained a high-quality exploration portfolio. The company looks promising and sustainable for the long term.

Based on the decent growth prospects and the valuation done using the above method, we have given a “Speculative Buy” recommendation at the current price of GBX 11.57 (as on 26th March 2020, before the market close at 9:33 AM GMT) with lower double-digit upside potential based on 3.15x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).
 
*All forecasted figures and peer’s information has been taken from Thomson Reuters.

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