British American Tobacco: Mixed H1, But Attractive At 8.0% Dividend Yield (Preview)

Company Update (BATS LN) (Buy)

Summary

• H1 results showed strong headlines, but a mixed underlying performance, in line with the low expectations in our investment case.

• EPS growth was 6.1% in H1 and is guided to be mid-single-digits for 2021 excluding currency, which is likely neutral for U.S. investors.

• H1 EBIT growth was led by strong cigarette price/mix in the U.S.; other regions saw either low-single-digit EBIT growth or a decline.

• In New Categories, BAT had aggressive price promotions, but remains a distant #2 in Heat Not Burn and U.S. nicotine pouches.

• With shares at 2,680.5p, we expect a total return of 69% (19.1% annualized) in just under 3.5 years. The Dividend Yield is 8.0%

Introduction

We review our British American Tobacco ("BAT") investment case with H1 2021 results released last Wednesday (July 28).

We upgraded our rating on BAT to Buy in March 2020. Since then, shares have gained 15.9% (including dividends) in GBP, which has appreciated by 21% against USD. BAT's share price has significantly underperformed p…