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BATS builds non-traditional market alternatives

The tobacco giant's focus on new category products is gaining momentum
BATS builds non-traditional market alternatives

British American Tobacco (BATS) continued to loosen its dependency on traditional tobacco products in favour of new category alternatives like vapour. During the first half, revenue from these products increased by 27 per cent to £531m. Recently instated chief executive Jack Bowles said that this segment of the business is on track to grow revenue in the middle of the 30-50 per cent guidance range by the end of the year. New product launches and the full year effect of additional investment in these products are expected to accelerate this rate of growth through 2020.

IC TIP: Buy at 3131p

As expected, the total volume of cigarettes sold continued to fall, down 3.5 per cent, in line with the wider industry decline. In key markets, value share improved by 10 basis points while volume share was in line with last year. Encouragingly, strategic brands, those with a certain cache or product features, like Rothmans and Neo, increased volume share by 60 basis points.

Analysts at Liberum expect EPS of 319p in 2019, increasing to 344p in 2020.

BRITISH AMERICAN TOBACCO (BATS) 
ORD PRICE:3,131pMARKET VALUE:£ 71.8bn
TOUCH:3,130-3,131p12-MONTH HIGH:4,240pLOW: 2,337p
DIVIDEND YIELD:6.6%PE RATIO:12
NET ASSET VALUE:2,846p*NET DEBT:71%
Half-year to 30 JuneTurnover (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
201811.63.9711897.6
201912.23.87123101.5
% change-4+3+5+4
Ex-div:01 Oct   
Payment:14 Nov   
*Includes intangible assets of £124bn or 5,410p per share NB: Dividend paid in quarterly installments of 50.75p for 2019