We came across a bullish thesis on British American Tobacco p.l.c. (BTI) on Substack by Tyler Moody. In this article, we will summarize the bulls’ thesis on BTI. British American Tobacco p.l.c. (BTI)’s share was trading at $38.93 as of Feb 28th. BTI’s trailing and forward P/E were 22.57 and 8.55 respectively according to Yahoo Finance.
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British American Tobacco (BTI) reported total adjusted organic sales of £27.2 billion and operating profit of £14.4 billion, though non-adjusted profits were impacted by the Canada settlement, resulting in an operating margin of 45.8%. In the U.S., the adjusted organic operating margin stood at 56.8%, highlighting the company’s strong profitability. BTI increased its dividend by 2% and initiated a £900 million share buyback program, while leverage improved to 2.4x, aligning with its long-term target for 2026. Despite an 8.9% decline in total combustible volumes—significantly steeper than the industry’s 2% decline—total combustible sales fell only 1.9% and remained stable after adjusting for exits from Russia and Belarus. In the U.S., volumes declined by 10%, compared to an 8.4% industry drop, with sales down 4% and operating profit declining 3.5%.
BTI’s non-combustible segment showed mixed performance. U.S. vapor sales declined by 1%, while modern oral product sales surged by over 200%, though they still represent just 8% of new category sales. Overall, new category revenue grew 4.6%, with modern oral products driving an 8.9% increase in total new category sales. These products now account for 13% of BTI’s total revenue but contribute only £251 million in operating profit. The launch of Velo Plus in the U.S. has shown promising early results, supporting the company’s strategic shift toward reduced-risk products. For 2025, BTI expects cigarette volumes to decline by 2%, while revenue is projected to increase by 1% and operating profit by 1.5% to 2.5%.
With an anticipated revenue of $33.25 billion in 2025, BTI’s operating margin is projected at 40%, and after accounting for a 25% tax rate, the company’s enterprise value is estimated to be $149.6 billion. When adjusted for cash and debt, this results in an equity value of $108.3 billion, suggesting a share price of $48.60—higher than the current market price. BTI remains dedicated to enhancing shareholder value through dividends and buybacks, all while strategically positioning itself for sustainable growth in the non-combustible products sector.
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, 25 hedge fund portfolios held BTI at the end of the fourth quarter which was 24 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.