British American Tobacco is a publicly-listed tobacco company (ADR: BTI) that sells cigarettes, vaping products, Tobacco Heating Products (THP), oral tobacco and nicotine pouches. It operates under brand names Vuse, glo, Velo, Grizzly, Kodiak, Dunhill, Kent, Lucky Strike, Pall Mall, Rothmans, Camel, Natural American Spirit, Newport, Vogue, Viceroy, Kool, Peter Stuyvesant, Craven A, State Express 555 and Shuang Xi. Have a look at some of its regional information.
United States:
59bn cigarette sticks sold in 2022 versus 77bn in 2018.
$10,470m combustible revenue in 2022 up from $9,078m in 2019
$913m sales of vapour products in 2022 from $207m in 2019
Americas and Sub-Saharan Africa:
148bn cigarette sticks sold in 2022 down from 157bn sticks in 2018
Sticks increased over the last two years from 147bn in 2020
Negligible amount of vapour products
$3,571m combustible sales 2022 vs $3,435m in 2021
Europe:
193bn cigarette sticks sold in 2022 versus 220bn in 2020
$1,171m revenue of New Categories (Vapour, Tobacco Heating Products, Modern Oral) in 2022 from $469m in 2020 (price includes North Africa)
Combustibles sales currently at $4,996m, down a bit more than 6% from 2020
Asia-Pacific and Middle East:
Enjoying a rebound of sales from cigarette sticks. 205bn units in 2022, up from 198 in 2020. But still down from 221bn in 2018
$3,813 combustible sales in 2022 down from $4,387 in 2019
THP relatively stable over last two years, currently at $523m sales in 2022
After reviewing all the information, BAT gets most of its profits from the United States. Over the years, price increases of combustible products along with growth in vapour-related products helped maintain revenue and earnings in the United States even though cigarette usage is gradually declining. Reported profit from operations in the U.S. is $6,205m out of a total $10,523m, up slightly since 2020 with a total of $9,962m. It’s interesting how in some regions consumption of combustible cigarettes have actually bottomed out or even increased. Although it seems like the global trend is a broad decline in usage but after looking at this data, I’m not so sure. BAT’s operating income has increased from 9bn GBP in FY 2019 to 15.2bn GBP in FY2022 even though cigarette unit sales have decreased from 638 billion in 2020 to 605 billion in 2022.
Here’s more about BAT. It’s based in London, England and is undervalued compared to peers.
P/E ratio of 7 (Philip Morris: 18, Altria Group: 11.4)
Price/book of 0.84 (PM: N/A, MO: N/A)
8.38% dividend with a sustainable payout ratio of 44% (PM: 5.36% with 98.28% payout, MO: 9.04% with 98.95% payout)
5-Year monthly beta of 0.33 (PM: 0.74, MO: 0.62)
BAT is close to a 52-week low as well as 5 year-low, having stabilized after Brexit uncertainty. I believe BAT is positioned to benefit from the transition of traditional tobacco products into safer and healthier products, where it currently owns the number one global vapour brand. Meanwhile it will benefit from lingering cigarette sales.
***UPDATE DECEMBER 6 2023***
Fear over the lifetime value of cigarette brands in the United States has prompted BAT to write down $31b in value. Stock is down about 8% today. I believe that as income and purchasing power increase in poorer countries, it could be enough to make up for the gradual decline of cigarette smoking in the US.
Disclaimer: I own and recommend shares of British American Tobacco.
Devlin Demontigny 