Interactive Investor

ii view: BAT targets strong new category sales growth

A dividend yield of over 6% is now joined by a £2 billion share buyback programme. We assess prospects.

16th February 2022 15:42

Keith Bowman from interactive investor

A dividend yield of over 6% is now joined by a £2 billion share buyback programme. We assess prospects. 

Full-year results to 31 December

  • Adjust revenue up 6.9% to £25.68 billion
  • Adjusted profit up 5.2% to £11.15 billion
  • Adjusted net debt down 11.1% to £35.55 billion
  • Total dividend for the year up 1% to 217.8p per share

Guidance:

  • Expects currency adjusted revenue growth of between 3% to 5%
  • Strong New Category revenue growth and further reduction in losses
  • Expects high single-figure currency adjusted earnings growth - second half weighted

Chief executive Jack Bowles said:

In 2021, the business delivered on our transformation journey to build A Better Tomorrow. Putting ESG at the heart of our strategy and corporate purpose is delivering sustainable growth, encouraging more consumers to transition to reduced-risk products and reducing the health impact of our business. We are also on track to achieve our other ESG targets, including carbon neutrality from our operations by 2030.

“The BAT of tomorrow will be a high-growth, consumer-centric, multi-category consumer goods company. We are confident in delivering a faster transformation, continued robust financial performance and superior cash returns to shareholders.”

ii round-up:

Founded in 1902, British American Tobacco's (LSE:BATS) traditional cigarette or combustible brands today include Dunhill, Rothmans, Kent, Lucky Strike and Camel.

Its collection of non-combustible products includes alternatives such as vapour products, tobacco heating items, and modern oral nicotine pouches, as well as traditional oral products such as snus and moist snuff. 

New category brand names include Vuse, Vype, Glo and Velo. 

For a round-up of these latest results, please click here

ii view:

BAT is now committed to reducing the health impact of its business through a multi-category approach. It is now targeting £5 billion of revenue and profitability for its new categories' products by 2025, along with 50 million consumers of non-combustible products by 2030. That’s up from a current 18.3 million. Non-combustible products now account for 12% of group revenues, up from 4% in 2017.

For investors, the bulk of BAT’s sales still come from traditional tobacco products, with ethical issues leaving the industry an untouchable sector for many. Further increases in various government regulations and duties cannot be dismissed, while the ongoing pandemic will be disrupting travel-related sales. 

On the upside, new category sales continue to grow. A historic and estimated future dividend yield of over 6% is tough to ignore in an era of ultra-low interest rates, while strong cash flows will now support a £2 billion share buyback programme going forward. In all, and given management’s focus on shareholder returns, already established income-oriented fans of the company may wish to stay patient. 

Positives:

  • Growing new category vape products
  • Attractive dividend income

Negatives

  • Covid-19 travel bans hitting sales
  • Currency moves can hinder

The average rating of stock market analysts:

Strong buy

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