British American Tobacco: Stable H1 Headlines, Some Worrying Signs But 7x P/E

Company Update (BATS LN) (Buy)

Highlights

• Total U.S. revenues fell 5.4%, even after strong Vapour growth

• The other 2 regions grew revenues and profits high-single-digits

• U.S. market may be turning; non-U.S. strength may be one-off

• Undemanding valuation with 7x P/E and 8.7% Dividend Yield

• We see 110% total return (27.5% p.a.) by end of 2026. Buy

Introduction

British American Tobacco ("BAT") released H1 2023 results last Wednesday (July 26). BAT shares in London have been roughly flat since results, and are currently down 18% in the past year (in GBP; ADRs are down 14% in dollars):

BAT Share Price Performance (Last 1 Year)

Source: Google Finance (30-Jul-23).

We upgraded our rating on BAT to Buy in March 2020. Since our upgrade, shares have gained 32% (in GBP, including dividends), but the share price has fallen by 25% since May 2022.

H1 2023 results were mixed, with several areas of concern. Group Adjusted EPS grew 5.3% year-on-year excluding currency, and full-year guidance of mid-single-digit growth was reiterated. However, t…