ii view: BATS encouraged by alternative products

by Keith Bowman from interactive investor |

New categories or alternatives delivered encouraging growth for tobacco giant BATS.

Half-year results

  • Revenue up 4.6% to £12.2 billion
  • Profit from operations down 1.3% to £4.38 billion
  • Borrowings up 3.7% to £50.2 billion
  • Previously announced total full year dividend of 203p, up 4% on 2017

Chief Executive Jack Bowles said:

“We continue to deliver on our financial objectives with adjusted revenue and adjusted profit from operations in line with our guidance, driven by a continued strong financial performance in combustibles. Our New Categories portfolio continued to deliver encouraging growth. While there is much more to be done, with new product launches planned for the second half of the year and the impact of a full year of additional investment, we expect revenue growth to accelerate in the second half of the year.”

ii round-up:

British American Tobacco (LSE:BATS) brands, including Dunhill, Kent, Pall Mall, Lucky Strike, and Rothmans, are sold in more than 200 markets worldwide. In 2018 it was market leader in more than 50 of them. 

Along with traditional cigarettes (combustibles), it now offers lower risk alternatives (new categories) such as vapor e-cigarettes and modern oral products.

For a round-up of these half-year results, please click here.

ii view:

Further litigation and increased regulation hang heavy. A US authority change regarding menthol cigarettes is being considered and debt has jumped following the purchase of Reynolds American. 

On the flip side, a change in the business model towards lower risk products is being executed and trading to date is on track. A historic dividend yield of over 6% (not guaranteed) offers some risk compensation, while the valuation has potential appeal – a prospective price earnings ratio (PE) of under 10 compared to a 10-year average of around 15. 

Positives:

  • Historic dividend yield of over 6% (not guaranteed)
  • Alternative products delivering encouraging growth

Negatives

  • Surveys have pointed to falls in US industry cigarette volumes
  • A US regulatory authority change regarding menthol cigarettes could impact profits

The average rating of stock market analysts:

Buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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