Alternative products are all the rage at tobacco companies, including British American Tobacco (BATS). Consumers are smoking less than they used to, and the volume of traditional cigarettes sold has been on the decline across the sector. While the market frets about the disruption this may cause for big tobacco companies, BATS has been busy investing in alternative products, such as vapour and devices that heat but do not burn tobacco. We believe heavy share price falls over the past 12 months due to toughening US regulation and concerns about BATS' sky-high debt following the acquisition of Reynolds America in 2017 have presented a buying opportunity.
Income major
Highly cash generative
Growth from next generation products
Shares look cheap
Tough regulatory environment
Highly leveraged