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BATS’ restructuring “largely complete”

Sales climbed, but profits edged down after litigation charges
February 27, 2020

British American Tobacco (BATS) delivered a broadly solid performance for the year to December. The group’s principal combustibles division saw revenue growth of 4.2 per cent to £23bn, while revenues for new categories (including vapour) were up by more than two-thirds to £1.3bn.

IC TIP: Hold at 3,291p

The latter improvement came despite a slowdown in US vapour, amidst ongoing regulatory scrutiny across the pond. In early January 2020, America’s Food and Drug Authority (FDA) announced that all flavoured cartridges, except for menthol and tobacco flavours, must be withdrawn until receiving clearance. BATS said that it welcomed the watchdog’s clarification of vaping rules. It has submitted an application for clearance pertaining to 15 products.

Operating profits edged down by 3.2 per cent, after various adjusting items including a £436m charge relating to a Quebec class action and a £202m charge tied to an excise dispute in Russia. Earnings were also knocked by ‘Quantum’ – the title of the group’s restructuring and simplification programme, which was announced last September and which is now “largely complete”.

Broker Panmure Gordon expects adjusted pre-tax profits of £10.4bn and EPS of 336p for 2020, up from £25.9bn and 324p in 2019.

BRITISH AMERICAN TOBACCO (BATS) 
ORD PRICE:3,291pMARKET VALUE:£ 75.5bn
TOUCH:3,290.5-3,291p12-MONTH HIGH:3,507pLOW: 2,632p
DIVIDEND YIELD:6.4%PE RATIO:13
NET ASSET VALUE:2,786p*NET DEBT:67%**
Year to 31 DecTurnover (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
201513.15.86231154.0
201614.86.25250169.0
201720.329.61836195.0
201824.58.35264203.0
201925.97.91250210.4
% change+6-5-5+4
Ex-div (1st of 4 payments):26 Mar   
Payment (1st of 4 payments):13 May   
*Includes intangible assets of £119bn or 5,178p a share**Includes lease liabilities of £607m