We came across a bullish thesis on British American Tobacco p.l.c. (BTI) on Value Investing Subreddit Page by Embarrassed_Pipe_312. In this article, we will summarize the bulls’ thesis on BTI. British American Tobacco p.l.c. (BTI)’s share was trading at $36.30 as of Jan 17th. BTI’s forward P/E was 7.91 according to Yahoo Finance.
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British American Tobacco (BAT), trading at €35.14 per share with a market cap of €77.45 billion and a 7.97% dividend yield, presents a compelling case for income-focused investors. Despite modest growth expectations and ongoing regulatory risks, BAT’s strong cash flow, leadership in emerging categories like vapour and modern oral products, and attractive valuation make it an appealing defensive play. The stock trades at a forward P/E of approximately 7x, significantly discounted compared to peers like Philip Morris (PMI) and Altria, signaling potential undervaluation for a company with consistent earnings and robust dividend sustainability.
BAT’s strategy revolves around reducing dependence on traditional combustible products, with a bold aim to generate 50% of its revenue from smokeless products by 2035. It currently leads the vapour segment with its Vuse brand, which holds a 40.3% value share in top markets, and is making strides in modern oral products through Velo. This strategic pivot positions BAT as a frontrunner in new categories, which have shown strong momentum, providing a path for long-term relevance in a declining smoke market. However, challenges remain, including regulatory pressures, such as potential vapour bans in markets like Mexico and the impact of the illicit single-use vape market in the U.S. Additionally, a 9% decline in U.S. combustible sales in 2024 underscores the broader market challenges, although strong performance in emerging markets provides a counterbalance.
From a valuation perspective, BAT appears fairly valued to slightly undervalued. Using a dividend discount model with a steady €2.80/share dividend and modest 2% annual growth, the intrinsic value aligns closely with its current share price, reflecting limited downside risk. Furthermore, its low P/E ratio contrasts sharply with PMI’s ~19x multiple, highlighting BAT’s discount despite its leadership in emerging categories and resilient cash flow. Comparatively, PMI’s dominance in premium heated tobacco and Altria’s U.S.-centric focus present different risk-reward profiles, with BAT offering a middle ground for investors seeking stability and income.
The overarching investment thesis hinges on BAT’s ability to accelerate growth in new categories at a pace exceeding the decline of its smoke products. While the strategy is ambitious, its execution thus far has been promising. For investors seeking a reliable dividend stock with modest growth potential, BAT offers a stable and defensive portfolio addition. With regulatory challenges already factored into its valuation, the next financial release will be pivotal in confirming its strategic trajectory. BAT remains a “Buy for Income,” not a growth play, but a compelling option for those prioritizing steady returns.
British American Tobacco p.l.c. (BTI) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 24 hedge fund portfolios held BTI at the end of the third quarter which was 21 in the previous quarter. While we acknowledge the risk and potential of BTI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BTI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.