COMPANY DESCRIPTION

BAT is engaged in the manufacture, marketing and sale of cigarettes and other tobacco products. The company has a robust market position, driven by the strength of its GDBs portfolio, which enables it to capture more market share as shifts in consumer preferences occur. However, growing regulation and excise tax on tobacco products is causing prices of products to increase, which is giving rise to illicit trade. This could deprive BAT of potential customers, while also affecting its long term revenue growth. 

 

ECONOMIC MOAT

In our opinion, British American economic moat comes from its impressive brand portfolio that is quite evenly balanced across price points. British American’s premium offerings, which comprise around one third of its portfolio volumes, include Dunhill, Kent, Lucky Strike, and Rothmans.

 

OUTLOOK

British American Tobacco remains committed to maintaining its 42% stake in Reynolds American and plans to invest $4.7 billion. The move should enhance BTI's position in one of the world's most profitable tobacco markets. Business prospects at British American remain solid. The company is still seeing lower overall demand for its cigarettes, but it continues to report solid gains from its Dunhill, Kent, Lucky Strike and Pall Mall brands. BTI offers a good dividend yield. Over the 3- to 5-year pull, the equity offers about-average total return potential. 

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STRENGTHS

  • Strong market position driven by GDBs

  • Strong global footprint reduces business risk

  • Product innovation drives organic growth 

WEAKNESSES

  • Pending legal cases could tarnish brand image

  • Lack of scale compared to peers 

THREATS

  • Growing illicit trade

  • Stringent advertising regulations on promotion and packaging of tobacco products

  • Increasing excise taxes could pressurize profitability 

OPPORTUNITIES

  • Growing market for tobacco products in the Asia-Pacific

  • Growing snus market

  • Increasing demand for e-cigarettes 

The above report is for information purposes only, and is not a solicitation or offer to buy or sell any securities. Past performance is no guarantee of future performance. Neither diversification nor asset allocation ensures a profit or guarantees against loss. Before investing, investors should consider their risk tolerance, investment objectives, time horizon, available capital, and charges and expenses.  

 

The information presented in this report has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guranteed. All material is subject to change without notice. The views and opinions expressed are those of Focused Stock Research and/or WALT ST Investment Management, Ltd. and in no way reflect the views and opinions of Investment Consultants nor their Broker Dealers.

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