British American Tobacco: Solid 2021 Earnings Driven By U.S. Business

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

Summary

• British American Tobacco stock reached a new 52-week high after 2021 results on Friday. The P/E is 10.2x and the Dividend Yield is 6.5%.

• Group earnings were solid, with EPS rising 6.6% excluding currency. The dividend was raised 1% and £2bn in buybacks were announced.

• U.S. profits grew 9.2% and drove group earnings, after Combustibles price/mix of 13.1%; Vuse contribution profit turned positive.

• However, US nicotine pouches were a failure, and profits were down for a second year in two regions; IQOS is a growing risk in Europe.

• With BAT shares at 3,368.5p, we expect a total return of 51% (12.6% annualized) by 2025 year-end, in just under 4 years. Buy.

Introduction

British American Tobacco PLC (referred here as "BAT") shares rose 3.0% in London on Friday (February 11), following 2021 results.

As of Friday close, BAT stock is at a new 52-week high, having gained 49% (in GBP, including dividends) since we upgraded our rating to Buy in March 2020.

2021 results showed BAT's strong U.S. busi…