British American Tobacco (LON: BATS) is a London-listed company engaged in the tobacco and nicotine products industry. BATS has a long heritage dating back to 1902. The company was founded in the UK and has expanded its operations to various regions, including the United States of America, the Americas and Europe, and Asia Pacific, Middle East & Africa.
The company's diversified product portfolio encompasses a wide range of tobacco and nicotine products, while it also has vapour, or vape products. Overall, its product categories comprise vapour, tobacco heating products, modern oral (nicotine pouches), traditional oral, and combustibles (traditional products such as cigarettes.
BATS has demonstrated a history of robust financial performance and strategic investments, positioning itself as an attractive choice for investors. The company's shares are publicly traded on the London Stock Exchange (LSE) and it is a constituent of the FTSE 100. Its current CEO is Tadeu Marroco. He was appointed the company's CEO in May 2023.
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British American Tobacco EPS and Revenue Breakdown 2020-2023
| BATS | Annual EPS | Annual Revenue |
|---|---|---|
| 2020 | 331.7p | £25.77 billion |
| 2021 | 329p | £25.68 billion |
| 2022 | 371.4p | £26.66 billion |
| 2023 | (646.6)p | £27.28 billion |
Tobacco Industry Comparison
British American Tobacco Share Price & Dividend Yield
Despite making some gains in 2022, BATS shares have been on the decline for the last few years and currently trade significantly below their 2017 highs of over 5,500p. As of April 7, 2024, the stock is down more than 16% over the last 12 months, currently trading around the 2,329p mark. With declining cigarette volumes across its key markets, BATS shares have struggled for upside momentum.
Even so, the company's dividend yield of 10% represents an attractive proposition for investors. Its dividend per share has also continued to increase.
YOUR CAPITAL IS AT RISK
BATS Share Price Forecast
In late January, UBS cut its rating for British American Tobacco to Neutral from Buy, lowering the price target to 2,400p from 2,900p. The investment bank said BATS's multi-category strategy for tobacco's transformation “has proven accurate,” but the company's execution has had mixed success.
They also said British American's largest market, the US, had “now become challenged,” which resulted in the new 2024-26 investment plan. Furthermore, UBS feels the plan will limit earnings per share growth and share buybacks until 2026 and “keep investors on the sideline.”
On the flip side, analysts at BofA reinstated coverage of British American Tobacco with a Buy rating and a 2,900p price target on January 11, 2024. The bank argues that BATS is working to offset the secular decline in traditional tobacco with the high-speed growth of next-generation products. In addition, they believe the “cyclical” loss in US market share should steady as the downtrading comes to an end, while they also expect shareholder returns to accelerate again in 2025.
Our View: While British American Tobacco's dividend yield is extremely attractive, the share price decline is hard to ignore, especially as cigarette volumes decline and vaping concerns increase. Investors should carefully assess the BATS risks.
Who Might Buy BATS Shares
As with any investment you make, it is important to consider several factors. These factors will have a lot to do with personal circumstances and preferences. So, make sure you consider the following:
British American Tobacco shares have experienced a significant downturn in recent years with the industry it operates in having significant headwinds. However, the company does pay dividends. As a result, risk tolerance is a key factor to consider. Depending on your outlook for the industry, BATS shares may be seen as higher risk.
As mentioned, British American Tobacco has a history of paying dividends, and its current dividend yield is very attractive. Therefore, the stock may be attractive if you are a dividend focused investor.
Your investment horizon is another key factor to consider. Again, this will depend on your outlook for the company's strategy and the industry overall. If you are positive about the company's turnaround, BATS may be a stock to consider.
An important aspect to consider is something for investors with specific ethical or religious beliefs. Investing in a company that is in the smoking industry will need to be evaluated. Individuals should align their investment decisions with their personal values and beliefs.
