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1. Company Snapshot

1.a. Company Description

British American Tobacco p.l.c. provides tobacco and nicotine products to consumers worldwide.It offers vapour, tobacco heating, and modern oral nicotine products; combustible products; and traditional oral products, such as snus and moist snuff.The company offers its products under the Kent, Dunhill, Lucky Strike, Pall Mall, Rothmans, Camel, Newport, Natural American Spirit, being Vapour, THP, and Modern Oral brands.


It distributes its products to retail outlets.British American Tobacco p.l.c. was incorporated in 1902 and is headquartered in London, the United Kingdom.

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1.b. Last Insights on BATS

British American Tobacco's recent performance has been impacted by weak financial prospects. The company's valuation has been a concern, with a 35.8% rally year-to-date, sparking debates about its pricing. A strategic partnership aimed at expanding its reduced-risk product portfolio has garnered investor interest. However, RBC Capital downgraded the stock to Underperform, citing profit expectations. Additionally, the company suspended the US vape rollout due to regulatory pressure and faced a CFO departure.

1.c. Company Highlights

2. British American Tobacco (BAT) Earnings Update

British American Tobacco (BAT) reported a solid performance in 2024, with smokeless products contributing 17.5% of group revenue, an increase of 1 percentage point compared to the previous year. The company added 3.6 million new consumers to its smokeless category, driving a GBP251 million increase in revenue from new categories. Adjusted operating profit rose by 1.4%, reflecting margin improvements and cost-saving initiatives. BAT reiterated its long-term growth targets, aiming for 3-5% revenue growth and 4-6% adjusted profit before tax (APBT) growth by 2026. These targets are contingent on stabilizing macroeconomic conditions and improved market dynamics, particularly in the U.S., where the company faces challenges from deep discount competition and regulatory headwinds.

Publication Date: Apr -09

📋 Highlights
  • 1. Growth in Smokeless Products: - Smokeless products contributed 17.5% to group revenue in 2024, up by 1 percentage point, with 3.6 million new consumers. This shows a strategic shift towards healthier alternatives and expanding consumer base.
  • 2. Challenges in the U.S. and Canada: - The U.S. faced a 3.4% revenue decline due to market exits and macro pressures, while Canada struggled with vapor product challenges. These regions pose significant hurdles to growth.
  • 3. Importance of New Product Launches: - BAT is focusing on new product launches, such as the Velo, to drive growth. These innovations are expected to enhance competitiveness and market share, particularly in key markets.
  • 4. Capital Allocation and Buybacks: - The company emphasizes balancing debt reduction with shareholder returns, including resuming buybacks in 2026. This strategy aims to maintain financial health while rewarding investors.
  • 5. Long-Term Growth Targets: - BAT aims for 3-5% revenue and 4-6% APFO growth by 2026. Achieving these targets hinges on improving U.S. performance, new product success, and managing regulatory challenges effectively.

Financial Highlights

BAT's financial performance in 2024 was marked by organic revenue growth of 1.3%, with new category revenue increasing by 8.9%. The company achieved GBP900 million in savings, with a target of GBP1.2 billion by year-end. Adjusted operating profit rose by 1.4%, reflecting margin improvements in new categories, which increased by 7 percentage points. However, the U.S. market remained challenging, with vapor revenue declining by 2.5% due to regulatory and competitive pressures. Despite these challenges, BAT remains confident in its ability to achieve its 2026 targets, driven by innovation and cost efficiency.

New Product Categories and Market Expansion

BAT's focus on new product categories remains a key driver of growth. The company highlighted the success of its heated tobacco products, with revenue growing by 6%, and modern oral products, which saw a 53% increase in revenue. The company also emphasized the potential of its new vapor products, such as the Velo Plus, to drive growth in key markets. BAT's strategy to expand its presence in emerging markets, particularly in Asia and the Middle East, has also contributed to its strong performance in these regions. The company remains committed to its innovation pipeline, with plans to launch several new products in the second half of 2025 to support its growth trajectory.

Regulatory and Market Challenges

BAT acknowledged the challenges posed by regulatory changes and market dynamics in certain regions. In the U.S., the company faces headwinds from deep discount competition and regulatory changes, which have impacted its vapor product sales. However, BAT remains optimistic about the U.S. market, citing the potential for recovery in the combustible segment and the impact of new product launches in the latter half of 2025. In Australia, the company highlighted the impact of new regulations, including graphic health warnings and minimum pricing measures, which are expected to reduce illicit trade. Despite these challenges, BAT remains focused on navigating regulatory environments to maximize its market potential.

Valuation and Capital Allocation

BAT's 2024 results demonstrate the company's ability to navigate a complex regulatory and competitive landscape while maintaining its focus on innovation and cost efficiency. With a clear roadmap to achieve its 2026 targets, the company remains well-positioned to capitalize on growth opportunities in key markets while managing risks associated with regulatory changes and macroeconomic conditions.

3. NewsRoom

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Assessing British American Tobacco (LSE:BATS) Valuation Following Recent Share Price Momentum

Nov -27

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Organigram Announces Appointment of Chief Executive Officer

Nov -25

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Tobacco Stocks Fall as Attorneys General Urge Shopify to Stop Illegal E-Cigarette Sales

Nov -24

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Did British American Tobacco’s 54% Price Surge Signal a New Outlook for 2025?

Nov -20

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The Safer Way to Earn 5%+ Yields Without Chasing Risk

Nov -19

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Local investors purchase KBio; will look for partnerships for pharmaceutical company

Nov -15

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UVV or BTI: Which Is the Better Value Stock Right Now?

Nov -07

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Assessing British American Tobacco’s Valuation After 35.8% Rally and Strategic Partnership Announcement

Nov -04

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4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (4.20%)

6. Segments

United States (US)

Expected Growth: 3.5%

British American Tobacco p.l.c.’s US operations are expected to grow driven by increasing demand for e-vapor and oral tobacco products, as well as a strong brand portfolio.

Americas and Europe (AME),

Expected Growth: 4.3%

British American Tobacco's AME region is poised for growth driven by increasing demand for heated tobacco products and a growing middle class in key markets, including the Middle East and Africa.

Asia-pacific, Middle East and Africa (apmea)

Expected Growth: 5.5%

British American Tobacco’s growing presence in Asia, Middle East, and Africa is driven by increasing demand for combustible tobacco products and a shift towards Next-Generation Products, such as e-cigarettes and heated tobacco products, particularly in Asia.

7. Detailed Products

Dunhill

A premium cigarette brand offering a range of blends and flavors

Lucky Strike

A heritage cigarette brand known for its distinctive red packaging and bold flavor

Kent

A premium cigarette brand offering a range of blends and flavors, known for its innovative filter technology

Rothmans

A premium cigarette brand offering a range of blends and flavors, known for its high-quality tobacco

Vype

A range of e-liquids and vaping devices offering a convenient, smoke-free alternative to cigarettes

Vuse

A range of e-liquids and vaping devices offering a convenient, smoke-free alternative to cigarettes

glo

A heated tobacco product offering a convenient, smoke-free alternative to cigarettes

Neocore

A range of nicotine replacement therapy (NRT) products, including gum, lozenges, and patches

8. British American Tobacco p.l.c.'s Porter Forces

Forces Ranking

Threat Of Substitutes

British American Tobacco p.l.c. faces moderate threat from substitutes, as consumers have limited alternatives to traditional tobacco products. However, the growing popularity of e-cigarettes and heat-not-burn products poses a moderate threat to the company's market share.

Bargaining Power Of Customers

British American Tobacco p.l.c. has a diverse customer base, which reduces the bargaining power of individual customers. Additionally, the company's strong brand portfolio and wide distribution network limit customers' ability to negotiate prices.

Bargaining Power Of Suppliers

British American Tobacco p.l.c. has a diversified supply chain, which reduces its dependence on individual suppliers. The company's large scale of operations and strong relationships with suppliers also limit their bargaining power.

Threat Of New Entrants

The tobacco industry has high barriers to entry, including significant regulatory hurdles and large capital requirements. This limits the threat of new entrants and allows British American Tobacco p.l.c. to maintain its market position.

Intensity Of Rivalry

The tobacco industry is highly competitive, with several large players competing for market share. British American Tobacco p.l.c. faces intense rivalry from companies like Altria Group, Inc. and Japan Tobacco Inc., which can lead to pricing pressures and advertising wars.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 43.05%
Debt Cost 5.24%
Equity Weight 56.95%
Equity Cost 5.24%
WACC 5.24%
Leverage 75.58%

11. Quality Control: British American Tobacco p.l.c. passed 4 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Stock-Card
Altria

A-Score: 8.0/10

Value: 6.8

Growth: 5.8

Quality: 7.5

Yield: 10.0

Momentum: 8.5

Volatility: 9.7

1-Year Total Return ->

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Stock-Card
Imperial Brands

A-Score: 7.7/10

Value: 5.8

Growth: 5.3

Quality: 6.3

Yield: 9.4

Momentum: 9.5

Volatility: 9.7

1-Year Total Return ->

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Stock-Card
Universal

A-Score: 7.2/10

Value: 7.8

Growth: 5.9

Quality: 4.0

Yield: 10.0

Momentum: 7.0

Volatility: 8.7

1-Year Total Return ->

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Stock-Card
Philip Morris

A-Score: 6.8/10

Value: 4.3

Growth: 4.1

Quality: 7.1

Yield: 8.0

Momentum: 8.5

Volatility: 9.0

1-Year Total Return ->

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Stock-Card
BAT

A-Score: 6.8/10

Value: 3.4

Growth: 3.6

Quality: 5.9

Yield: 9.4

Momentum: 9.5

Volatility: 9.0

1-Year Total Return ->

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Stock-Card
Scandinavian Tobacco Group

A-Score: 6.1/10

Value: 8.1

Growth: 4.0

Quality: 5.3

Yield: 9.4

Momentum: 1.5

Volatility: 8.3

1-Year Total Return ->

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

43.39$

Current Price

43.39$

Potential

-0.00%

Expected Cash-Flows