British American Tobacco (JO: SNHJ ) (BTI), the manufacturer of cigarettes and vaping products, released a pre-close trading statement on Thursday (8 December) ahead of the release of its FY22 results (due to be announced on 9 February 2023). The Group was confident it would meet its FY22 guidance with the New Category segment continuing to drive strong volume, revenue, and market share growth for the business. The key points for us from the trading statement include the following:
- BTI’s constant currency foreign exchange (FX) revenue growth was expected to be between 2% and 4% YoY (unchanged from previous guidance).
- Net finance costs are estimated to be above GBP1.6bn (previously, this number was closer to GBP1.6bn, i.e., revised higher).
- BTI forecast mid-single-digit EPS growth in constant currency terms (unchanged).
- Operating free cash flow (FCF) is expected to be above 90% (unchanged).
- Net debt/EBITDA is at the upper end of the 2x-3x corridor.
- An FX tailwind of c. 7% (previously at 6%) is expected.
- Global tobacco volumes are forecast to be down 2% YoY in FY22 (this is better than the previously anticipated 3% YoY decline).
- BTI has added a further 3.2mn consumers within its non-combustible franchise in 9M22, reaching 21.5mn in total. This was on the back of new product launches and other innovations.
BTI ramped up marketing spend in the US to slow market share losses it is seeing from downtrading (both of which are likely to be a short-term earnings headwind for the Group).
Source: UBS analysis, NielsenIQ
BTI is trading on a forward P/E of 9.1x – marginally above the average over the last few years. The share is currently on a forward dividend yield of c. 7% (for FY23), and share buybacks should add c. 3.3% to shareholder returns in 2023.
Source: Bloomberg, Anchor
BTI reported some slight negatives from higher debt costs and signs of downtrading in the Group’s key US market, but this was offset by a stronger-than-anticipated FX tailwind. There was also solid progress on BTI’s next-generation products (while still loss-making, it remains on track for profitability in 2025). On balance, however, this was slightly negative. Nevertheless, we believe that the share offers a decent refuge for investors, with mid-single-digit earnings growth, dividends and share buybacks delivering a total return in the low- to mid-teens (in hard currency), albeit with bouts of volatility associated with regulatory pressure, particularly in the US menthol market which still accounts for c. 30% of total profit.
Add Chart to Comment
We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:
- Enrich the conversation
- Stay focused and on track. Only post material that’s relevant to the topic being discussed.
- Be respectful. Even negative opinions can be framed positively and diplomatically.
- Use standard writing style. Include punctuation and upper and lower cases.
- NOTE: Spam and/or promotional messages and links within a comment will be removed
- Avoid profanity, slander or personal attacks directed at an author or another user.
- Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
- Only English comments will be allowed.
Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.