BATMF - Moon Capital - British American Tobacco: Has The Potential To Substantially Rerate

2024-04-17 11:25:00 ET

Summary

• British American Tobacco (BTI) has faced regulatory challenges in the tobacco industry, but has still grown revenue and operating profit.
• BTI's free cash flow yield exceeds 16% and even higher when adjusted for non-operating strategic investments.
• BTI's rapid transformation away from traditional combustibles and growth in New Categories business could lead to a substantial rerating of the company's equity.

The following segment was excerpted from this fund letter.

British American Tobacco ( BTI )

We recently acquired shares in British American Tobacco. It's certainly no secret that the tobacco industry faces significant regulatory challenges, particularly in the U.S. combustibles sector. (Combustibles are traditional cigarette products that, when lit, the combination of the tobacco (fuel) and oxygen in the air produces a self-sustaining combustion process that consumes the tobacco. This contrasts with various heat-not-burn products, including e-cigarettes.) Despite these headwinds, however, BTI has organically grown its revenue by more than 4% annually over the last five years. The company's operating profit has also risen more than 5% per year, even as the company has distributed massive dividends. (The company currently pays a dividend yield of 10%.)...

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