British American Tobacco (BATS)

Sector:

Tobacco

Index:

FTSE 100

2,961.50p
   
  • Change Today:
      0.50p
  • 52 Week High: 3,619.00p
  • 52 Week Low: 2,375.00p
  • Currency: UK Pounds
  • Shares Issued: 2,293.81m
  • Volume: 2,183,950
  • Market Cap: £67,931m
  • RiskGrade: 150

Morgan Stanley turns 'incrementally more bearish' on British American Tobacco

By Iain Gilbert

Date: Monday 17 Jun 2019

LONDON (ShareCast) - (Sharecast News) - Analysts at Morgan Stanley downgraded industry giant British American Tobacco to 'underweight' on Sunday, noting that, in its view, the threat of a "maximum nicotine policy" in the US had not been reflected in the group's share price.
The broker said that making the 'buy' case for British American was "easy", stating the firm's shares represented a "structural growth story" suffering a temporary perception setback and labelled the group as "cheap", "unloved" and offering "a great long-term entry point."

Indeed, prior to acquiring Reynolds, BAT was delivering a roughly 20% return on invested capital, generating £3.5bn of free cash flow, and while post-acquisition the analysts estimated that its ROIC had fallen to 7% and leverage had risen to around 4 times' in 2018, the business was set to generate £7bn of free cash.

"This company has consistently delivered 3-5% top-line growth, 5-8% profit growth and 8-12% EPS growth, putting it right in the top tier of the global Staples group, but the stock is on a 2020 [price-to-earnings multiple] of just 8.5x with an ~11% free cash flow yield and an ~8% dividend yield."

However, MS believed the "high impact on future profits" stemming from a potential regulation change Stateside was not "fully understood or appropriately reflected" in BAT's share price.

"In our scenario analysis we take a conservative stance on new regulation, assuming regulation to reduce nicotine to non-addictive levels takes until 2035 to come into force," said MS.

"However, even in this scenario we estimate that BAT's US profits could be as much as 50% lower and ~13% of future value at risk to the market cap."

The broker also lowered its price target on the group's shares to 2,600p based on target multiples of 7x forward earnings, implying a roughly 11% downside.

In summary, MS felt the combined risks from regulatory change, disruption/investment requirements, changing consumer behaviour and high leverage gave it more than enough cause to turn "incrementally more bearish".

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Note 1: Prices and trades are provided by Digital Look Corporate Solutions and are delayed by at least 15 minutes.

Note 2: RiskGrade figures are provided by RiskMetrics.

 

BATS Market Data

Currency UK Pounds
Share Price 2,961.50p
Change Today 0.50p
% Change 0.02 %
52 Week High 3,619.00p
52 Week Low 2,375.00p
Volume 2,183,950
Shares Issued 2,293.81m
Market Cap £67,931m
RiskGrade 150

BATS Star Ratings

Compare performance with the sector and the market.
more star ratings
Key: vs Market vs Sector
Value Not Available
Price Trend
48.17% below the market average48.17% below the market average48.17% below the market average48.17% below the market average48.17% below the market average
100% below the sector average100% below the sector average100% below the sector average100% below the sector average100% below the sector average
Income
89.82% above the market average89.82% above the market average89.82% above the market average89.82% above the market average89.82% above the market average
100% below the sector average100% below the sector average100% below the sector average100% below the sector average100% below the sector average
Growth
55.17% above the market average55.17% above the market average55.17% above the market average55.17% above the market average55.17% above the market average
100.00% above the sector average100.00% above the sector average100.00% above the sector average100.00% above the sector average100.00% above the sector average

What The Brokers Say

Strong Buy 14
Buy 0
Neutral 4
Sell 1
Strong Sell 1
Total 20
buy
Broker recommendations should not be taken as investment advice, and are provided by the authorised brokers listed on this page.

BATS Dividends

  Latest Previous
  Q4 Q3
Ex-Div 24-Dec-19 03-Oct-19
Paid 06-Feb-20 14-Nov-19
Amount 50.75p 50.75p

Trades for 19-Sep-2019

Time Volume / Share Price
16:44 400 @ 2,967.25p
16:44 6,745 @ 2,948.82p
16:39 1,145 @ 2,961.50p
16:39 100 @ 2,961.50p
16:39 200 @ 2,961.50p

BATS Key Personnel

Chair Richard Burrows
CEO Jack Bowles
Finance Director Tadeu Marroco

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