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Raising Fair Value of Reynolds American

We think the acquisition value of the company is on the upswing as a result of the continued rise in the market price of British American Tobacco.

We are raising our fair value estimate of

Our GBX 4,800 fair value estimate of BAT is unchanged because the underlying terms of the deal have not changed. At almost 11 times enterprise value/EBITDA, the deal is slightly above historical developed-market tobacco deals since 1998. It is very slightly value-destructive, in our view, although not by a material amount, and any value destruction will have been mitigated by the recent weakness in the British pound against the U.S. dollar, following the U.K.'s recent general election.

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About the Author

Philip Gorham, CFA, FRM

Strategist
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Philip Gorham, CFA, FRM, is a strategist, consumer equity research, for Morningstar Asia Limited, a wholly owned subsidiary of Morningstar, Inc. He relocated to Morningstar's Hong Kong office from Tokyo in November 2020. Gorham leads the equity analysts who cover Greater China equities and are based in Hong Kong, Shenzhen, and Singapore. Gorham continues to cover the European consumer staples sector, spanning beverages, consumer packaged goods, and tobacco products.

Gorham had extensive experience covering the consumer sector in Europe and the United States before moving to Asia in 2017. His most recent role was the director of equity research for Ibbotson Associates Japan, a Morningstar subsidiary

Gorham holds a bachelor's degree in economics from the University of Sunderland and master's degrees in business administration and accounting from the University of North Carolina. He also holds the Chartered Financial Analyst® and Financial Risk Manager® designations.

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