British American Tobacco: H2 Update Confirmed Stability & Capital Returns; 7.8% Dividend Yield

(Preview) Company Update (BATS LN) (Buy)

Summary

• British American Tobacco stock rose 7% last week, driven by a reassuring update on H2 trading. The Dividend Yield is still 7.8%.

• 2021 outlook was reaffirmed, including a 5%+ revenue growth and a mid-single-digit EPS growth (excluding a 7% currency headwind).

• Management still expects leverage to fall to "around 3x" at year-end, and explicitly referenced the possibility of buybacks resuming in 2022.

• The cigarette business has remained strong; New Category businesses are losing less money, but otherwise progress has been mixed.

• With shares at 2,759.0p, we expect a total return of 64% (19.6% annualized) by 2024 year-end, in just under 3 years. Buy.

Introduction

British American Tobacco PLC ("BAT") shares have been strong last week (December 6-10), with both its London-listed shares and its New-York-listed ADRs rising close to 7%, driven by the release of its H2 2021 pre-close update on Thursday. (U.K. companies issue "pre-close updates" before the close of a reporting period.)

BAT has bee…