British American Tobacco: Reaffirming Our Wide Moat and Fair Value Estimates; Shares Undervalued

We’ve reaffirmed our wide moat rating and fair value estimates of GBX 3,900 per share and $49 per ADR for British American Tobacco. This is based on our view that its growth will benefit from its next-generation products, but to a lesser extent than wide-moat peer Philip Morris International. In cigarettes, we continue to expect price increases will outpace declining volumes. Our valuation implies a 2024 price/adjusted earnings ratio of 11.5 times, enterprise value/adjusted EBITDA of 8 times, and 6% dividend yield. These multiples are at the middle of the tobacco peer group given middling long-term growth.