ii view: income seekers still back BAT
9th January 2023 14:56
by Keith Bowman from interactive investor
It owns brand names including Lucky Strike, Rothmans and Vuse and offers an estimated future dividend yield of 7%. Buy, sell, or hold?
Full-year trading update to 31 December
- Expects currency adjusted revenue growth of between 2% to 4%
- Expects mid-single currency adjusted earnings growth
Chief executive Jack Bowles said:
"We continue to accelerate our ‘A Better Tomorrow’ transformation, at pace. We are confident in delivering our 2022 guidance, demonstrating once again the strength and resilience of our business.”
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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. New category brand names include Vuse, Velo, and Glo.
For a round-up of this latest trading update announced on 8 December, please click here.
ii view:
FTSE 100 constituent and rival of Imperial Brands (LSE:IMB), BAT operates in more than 170 markets. Employing around 52,000 people, it is now committed to reducing the health impact of its business through a multi-category approach. It is targeting £5 billion of revenue plus profitability for its new category products by 2025, along with 50 million consumers of non-combustible products by 2030. During the full year 2021, combustible and traditional oral tobacco products accounted for 90% of sales, with new categories making up the balance.
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For investors, and with most of its sales from traditional tobacco products, ethical issues continue to leave the industry untouchable for a lot of investors. BAT itself highlights that its new category products are not risk free, while slowing economies was highlighted as having dampening impact on customer demand.
On the upside, new category sales are expanding, with consumer numbers growing. Cost savings continue to be targeted, while strong cashflows support shareholder returns including an estimated future dividend yield in the region of 7%. For now, and with shareholder returns remaining attractive, income investors at least are likely to continue to like the shares.
Positives:
- Increased focus on new category vape products
- Attractive dividend yield (not guaranteed)
Negatives
- Uncertain economic outlook
- Currency movements can impact
The average rating of stock market analysts:
Buy
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