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Company Overview: British American Tobacco PLC (NYSE: BTI) is a British multinational corporation that produces and sells cigarettes, tobacco, and other nicotine-containing products. Dunhill, Kent, Lucky Strike, Pall Mall, Rothmans, Neo, Newport, Camel (in the US) and Natural American Spirit (in the US) are among the company's strategic combustible and Tobacco Heating Products (THP) brands, with over 200 brands in its portfolio, including a growing portfolio of potentially reduced-risk (PRRP), new category products. It has strong market positions in its markets, with leadership in more than 55 of them. BTI has 2.29 billion American Depository Shares (ADS) listed and outstanding (each ADS representing one ordinary share).
BTI Details
Key Takeaways from H1FY21 (ended June 30, 2021)
Revenue & Gross Profit Key Highlights; Analysis by Kalkine Group
Recent Developments
Steady Dividends
BTI announced an interim dividend of GBP 2.16 per ordinary share on February 17, 2021, which will be paid in four equal quarterly instalments of GBP 0.54 per ordinary share in May, August, November, and February 2022. The equivalent quarterly dividends are payable to ADS shareholders on February 14, 2022, in US dollars. Over the last five years, the company has regularly paid dividends, as also reflected in the chart below (every D represents a dividend payment):
Consistent Dividends (Data Source: REFINITIV)
Balance Sheet & Liquidity Position
Key Metrics: In H1FY21, BTI's EBITDA and net margins were 44.5% and 27.3%, vs. the industry median of 22.2% and 7.5%, respectively. In addition, its Debt/Equity ratio as of H1FY21 end was 0.72x vs. 0.70x as of H2FY20.
Profitability and Leverage Profile; Analysis by Kalkine Group
Top 10 Shareholders: The top 10 shareholders (in terms of ownership of ordinary shares listed on the LSE) together form around 34.02% of the total shareholding, while the top 4 constitute the maximum holding. Spring Mountain Investments, Ltd., and BlackRock Institutional Trust Company, N.A. hold the maximum stake in the company at 7.90% and 5.79%, respectively, as also highlighted in the chart below:
Top 10 Shareholders; Analysis by Kalkine Group
Risk Analysis
Outlook
Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)
Source: Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: Over the past six months, BTI corrected 12.67%. The stock is currently trading below the mid-point of its 52-week range of USD 34.09 to USD 41.14. We have valued the stock using the EV/EBITDA multiple-based illustrative relative valuation method and arrived at a target price with an upside of low twenties (in percentage terms). We believe that the company can trade at a slight premium compared to its peer's average, considering its market dominance, strong profit margins, and global presence. We have taken peers like Philip Morris International Inc. (NYSE: PM) and Altria Group, Inc. (NYSE: MO). Considering the company's market dominance, robust cigarettes and THP sticks volume, steady dividend yield, and current valuation, we give a "Buy" recommendation on the stock at the current price of USD 34.51, down 1.09% as of November 24, 2021, 10:42 AM ET.
BTI Technical Chart, Data Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decision should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above.
Technical Indicators Defined
Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.
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