British American Tobacco BATS Stock 2023 Quick Take

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British American Tobacco 2023 Quick Take

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    1. @TheBooban Reynolds American is the producer of Newport and Camel cigarettes, the acquisition was a major deal then. It is also the reason why the debt, assets and goodwill exploded in FY 2017, it was not due to financial engineering as the video suggested.

  1. A dying business that doubled its revenue in the past 10 years. Their vape side of the sale is up by 20% over the years.

  2. Walgreens seems to be getting cheap.
    Revenues are pretty much stagnant. There are litigation issues. And there is an awfully steady gross profit margin decline (from 30% to 20%) over the past decade.
    Valuationwise: if you take their 132.7b revenue as of FY22, grow that 2% per year over 5 years, apply a 2.6% profit margin (based on their FY23 adjusted EPS guidance of 4.0; pre-covid average was 3.5%) and assume that 50% of it is distributed as a dividend, applying a terminal multiple of 10 and discounting at 10%, I get $35.
    Morningstar’s valuation is more rosy ($48) and assumes that profit margins will reclaim 3% and earnings multiple will expand to 12-13, all else equal.
    I am not very familiar with the VillageMD and Summit Health ventures that they are investing on, so I cannot tell to what extent those can help boost margins, if at all.

  3. You did not even mentioned their reduced risk products. Obviously the transition is unkown, but it is growing 30% per year. Vuse is one of the leaders in that space, BTI also have huge ITC stake, You did not covered reynolds aquisitions ( which explain goodwill) and obviously stock is dirt cheap.
    Imo it is not true that a lot of smokers will die and business will die. On streets in Poland I see many young people with smokes ( but rather with e cigarretss than regular one).

  4. They are actually commited to pay down significant portion of their debt – they even decided to stop the share buyback program to allocate the money in lowering their debt burden. Also it’s not true that they use all their FCF to pay dividends as you stated in the video. Their 5 year FCF average is 9B (for 2022 it was 9.74B) and divdends take up around 5B. So very comfortable and safe dividend which also allows above mentioned debt lowering. Another thing which is not correct is that they are in dying business – they are heavily investing in ‘new category’ which is growing in double digits (it’s basically oral tobacco, vaping, heated tobacco, etc.). Plus they have pricing power over the legacy part (cigs) of their business and strong portfolio of brands. I respect that you don’t like cigarettes and investing in cigarettes but try to be objective since people who respect you could potentially lose trust in you if they see that you are not really doing a good job during your research in specific stocks/companies. It’s really obvious you don’t know much about BATS/BTI – which is fine – but then why you need to make video about it?

    1. You are totally right! I have researched extensively and sentiment is bad, very low PE compared to peers, but 5-8% growth a year, high and safe dividend, many markets so policies dont hurt them that much and dont forget the HIGH SKIN IN THE GAME! New CEO bought many shares right away too. Great capital allocation if you ask me (lowering debt due to the higher interest rates)!

  5. I completely disagree with you Sven this time. Emerging markets are not slowing so much tobacco products and here you have one of the most e prevedibile cash flow ever. Basically a bond with a 10% return over time even if they do not grow. People do no stop smoking from one year to another, so se debt is sustainable imho

  6. I disagree with you Sven. You did not mention the new categories that are growing fast while yes, normal cigarettes are not growing any more but are still stable due to price increases. There is still potential in Asia and Africa to grow. BAT also has huge pricing power; they reduce debt fast and the dividend is easily covered by their cash flows. For me it wasnโ€™t a buy 6 months ago but now ohhh yes!

  7. Most of the time I agree with you Sven, but not this time. Revenue and income is growing.
    Yeah lot of debt and goodwill but manageable.
    High dividend (pay out as well) but also slow and growing.
    Not so bad, like a lot of Sin stocks.

    1. The debt is not that crazy — it’s around 4-5 times current free cash flow. The real risk here is that sales and free cash flow margins dry up.

  8. Well, you’re not supposed to buy any stock, let alone dividend stocks at it’s peak and lose your capital! It is now you are supposed to DCA into a dividend stock like BAT. But the debt is concerning in this high interest environment if they don’t pay it off fast if the terms on them are high %.
    And the trend is down only in the developed countries. Lots of growth in the rest of the world where BAT has a strong presence.

  9. A little too quick of a take maybe, as it is in far better health than Altria, but tricky business nonetheless

  10. BAT also earns a significant portion of ITC in India. This is hardly known and adds significant value.

  11. Sven, I respect u (because of your thorough research and well-reasoned opinions) and I followed u here from Seeking Alpha a few years ago.
    These quick-takes are beneath u.
    I understand u are trying to find your way here on YouTube, but don’t tarnish your Brand.

  12. Poor Sven, does a Quick Take and everyone gives out it’s not Detailed enough, that would be a Long Take lads. Don’t mind them Sven, I bought 53 shares of Rubis this morning, so you are partly responsible for my children’s financial future, so that’s you, Li Lu, Seth Klarman, Monish Pabrai, Warren and Charlie, maybe even Ted n Todd, they’re in good hands! Keep it up, thanks for all the info.

    1. ps in case you’re not busy enough with the other billion videos you have planned I’d love to hear someone else’s take on Sofina stock, Brussels, probably just about 20% below NAV for a holding company but I like the look of them, they even got a nice bit of Bytedance in their portfolio

  13. The US market is going insane and Sven is commenting on the most irrelevant stocks and topics

  14. Sven may be right from a value perspective, but many investors use tobacco giants as income stock. Depending on when you buy, you’re beating the market evermore after 1-2 years of dividend growth. Dividend growth investors look at charts upside down. Stock price declines are good. Workers typically get paid over weeks and months, so you want perpetual down trends for long-term buying opportunities.

    The “decline” in smoking is extremely misunderstood; human population growth more than offsets the decline. Surely, you don’t think the decline will go on forever. We have nicotinic acetylcholine receptors in our bodies. As mentioned by others, the quitters are buying the non-combustibles instead, and guess who is selling those?

    Further, the obesity and diabetes epidemics, mental health crises, etc, indicate that the developed nations are not at all more health conscientious over time. The browning of the west from immigration means far more r-selectedness in the population. They are going to have short lifespans by definition (“fast life strategists”), and they are going to smoke. Their kids will smoke too (because of low parental investment. Again, it’s part of the definition). Mentally ill people are also more likely to smoke, and you can check the trends on that if you think your own eyeballs are not enough.

    Pricing power being what it is, the giants can raise the price on cigarettes by a penny and wipe out whatever problems they have–as they have done before. But they often lower prices too to prevent low-income addicts from quitting. The sky has been supposedly falling for these sin behemoths for generations. Like judo masters, they turn most of the bad news into some weird and twisted advantage. I hope some of you other investors have found this helpful.

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