British American Tobacco: Stock Down After Stable FY22 Update; 9x P/E

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

Summary

• Shares are down 2.8% in London this morning after the company updated on FY22. P/E is now 9x and Dividend Yield is 6.6%.

• Full-year guidance of a mid-single-digit EPS growth (at constant currency) was reaffirmed. EPS should grow 12% in pounds.

• In cigarettes, downgrading in the U.S. has accelerated in H2, but volumes in Emerging Markets were better than expected.

• The company is leading in Vapor but remains behind in Heated Tobacco and Oral Tobacco; there are also pending regulatory and tax risks.

• With shares at 3,316p, our return forecasts indicate a total return of 56% (17.9% annualized) by 2025 year-end. Buy.

Introduction

British American Tobacco p.l.c. ("BAT") released its H2 2022 pre-close update this morning (December 8). (U.K. companies release "pre-close updates" before the close of a reporting period.) BAT shares are down 2.8% in London as of 1 pm local time.

We originally upgraded our rating on BAT to Buy in March 2020. Since then, shares have gained 54% (including dividends) …