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British American Tobacco: Smoke Signals Point To Success

DOCSHAH FINANCIAL profile picture


  • BTI will be able to offset volume reduction with price hikes. Therefore, legislative risk should be the primary concern for investors.
  • The current valuation reflects legislative uncertainty, which may not prove to materialize as harmful as the market expects.
  • Investors have the opportunity to buy a company which is over a century old at a historically inexpensive price.
  • I provide three valuations: base, bear, and bull case. Also included is earnings/FCF analysis from FastGraphs.
  • There are a lot of risks involved and investors should understand them thoroughly as the tobacco industry is a high risk industry.

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Ysbrand Cosijn/iStock via Getty Images

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DOCSHAH FINANCIAL profile picture
DocShah Financial, LLC is a full service registered investment advisory firm. To have your portfolio created or reviewed by Raul Shah, please click on our website link below. Disclaimer: All writing presented is solely for entertainment purposes and not financial advice. Neither DocShah Financial nor its representatives are responsible for any financial outcome which may occur. We do not give out investment advice to the public nor any any individual, unless they are a client under our advisory services and subject to the terms and conditions which apply. www.docshahfinancial.com

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Neither this article nor any comment, message, video, or interaction associated with it is to be taken as financial advice. Investors should always do their own research before executing any financial transaction. Raul Shah is not liable for any financial outcome which might occur. Investors assume full responsibility for their actions.

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Comments (33)

DOCSHAH FINANCIAL profile picture
Article Update 23 May 2023

I wrote the dividend was cut in five out of the past nine years as I am so used to using FastGraphs (which is in USD) that I did not account for FX!

The company has NOT cut dividends in those years.

Thank you to all for bringing this to my attention. I strive to present the most accurate, in-depth reports on Seeking Alpha. I am human and sometimes make honest mistakes.

- Doc
@Raul Shah

With all due respect, when you write something as glaring as a company cutting the dividend 5 times in 9yrs, one would think that would signal a common sense alarm bell to check whats going on.

How many companies in the entire world have cut 5 times in the last 9yrs?

While I'm not saying this is the case, its clearly a red flag that you are potentially a serial pumper of articles on SA for a fee.
Gulf Coast Gill profile picture
@Fred. L. Not to pile on, but it is hard to disagree with your point. This was a rookie mistake. How can you do even the most simplistic of research on this company and not understand that a company based out of the UK, and formally listed on the London Stock Exchange, would not have some kind of forex conversion issue when dividends are paid out on a US based ADR? Just missing so much... obviousness. It is hard to understand and, hard to defend. The only rational explanation I can come up with is... well, I will struggle with my attempt to leave it here out of politeness and common decorum.
@Gulf Coast Gill

Well if you are pumping out articles without much real depth of knowledge, then you get that sort of result. Do you think someone writing on tobacco who deeply understands the industry would ever "accidentally" make that mistake?
I am late to the party but was going to comment on the "dividend" statement too. I felt better reading it when the author corrected it.

My understanding from reading past statements from the execs, they put high priority on the dividend.
5ofDiamonds profile picture
"British American Tobacco: Smoke Signals Point To Success" @Raul Shah

The more it drops, the more I add.

It is not a LT hold for me.

May exit once it crosses $45.

It's 1Y target estimate is $53.

I see it as a better place to park cash than even 1-Month-T-bill as of today.

My 1c.
glad i didn't reinvest dividends in this dumpster fire.

even MO is way outperforming the loser BTI after destroying billions on JUUL.
bk25 profile picture
good summary
arok79 profile picture
Long time holder of the stock. I must say I am loving these current prices. I think we $30/share. Looking to add another couple thousand shares at least should we see a further dip. My situation is different as I already own plenty of high yield paying BTI shares. I want a better discount in order to add more. For those of you with small positions or looking to start one then these current prices are ideal to buy.
@arok79 why the sell off in BTI? any significant changes or concerns…just wondering
bk25 profile picture
@arok79 always appreciate your remarks.
hugh74jones profile picture
BTI has been considerably oversold, and was/is ready for a rally, which indeed started Tues, during a negative market. Hopefully BTI will be able to trade above 35 and maintain that level. BTI is my 2nd large tobacco position, with MO being first. I have no plans to sell either of them!
I have to question your research when you say they've cut the dividend 5 out of the last 9 years.

Foreign exchange rates would explain this though I think you just simply looked at a Seeking Alpha chart and made the Assumption on your own.

These type of Publications are becoming more and more common on this platform

wallstreet368841 profile picture
if they start buy back they're stock which is highly creative right now they could grow the earnings at 10% a year! With the dividend and the dividend growth it could be a home run unless there's some kind of outlier and Black swan event the stock is definitely a buy and hold!
Dabub profile picture
"With that being said, please notice the dividend payments in dollars on the bottom row. BTI does not place emphasis on increasing its dividend each year the way Altria (MO) does, for example. Investors should be prepared for the company's dividend to be reduced whenever management sees fit. In the last nine years, the company has issued a dividend cut in five of them."

BTI hasn't cut its dividend in 5 of the last 9 years, they have in fact raised the dividend every year for 23 years in a row and they do place an emphasis on it like MO which separates them from IMBBY that cut in Covid. What caused "the cut" as you refer to it is GBP to USD exchange rate fluctuations. If you don't have a basic handle on the subject at hand, best to not write articles about it.
I don’t think that BTI has consciously cut their dividend. It is due to the Dollar strengthening against the Pound, remember that dividend is paid in Pounds. Having said that, Long BTI!
josephaoppenheim profile picture
It would be great if King Charley and the royal family all smoked BTI cigs as a patriotic duty.
Tellurium128 profile picture
@josephaoppenheim God save the cigarettes!
purpleboarder profile picture
I appreciate the author's honesty up front, on why he doesn't have a position in BTI. That said there are couple of things i disagree w/ in this article; both involve dividend (growth) investing...

- ..."if the stock price falls, they have to understand the price fell for some reason."

Stock price falling is not inherent to dividend paying stocks only. That reason could be the fault of the company, or not. It could be a macro event (Ukraine invasion), an industry event, or a company event. It could be the algo bots in mutual funds and indexes pulling the trigger on a massive sell..... If the fundamentals change, of course you re-assess, and act accordingly. But this valuation argument goes without saying for ALL investments; regardless if they pay a dividend or not. It just seems that the author raises the bar, and has a different set of rules for dividend paying companies. I know, I'm nitpicking... "Quality First, Valuation Second, Monitor Always".....

..."In the last nine years, the company has issued a dividend cut in five of them.".....

This is a forex issue, as BTI pays dividends in British pounds, and gets converted to US dollars when the dividend arrives for US investors. It's not a 'dividend cut'; it's a forex discrepancy.

As a british company, it is subject to foreign tax, IF held in a taxable acct. Otherwise, if held in an IRA or Roth IRA (or 401K), you aren't hit w/ this tax.

Very good article though...

- Long BTI, PM....

No foreign witholding taxes for US citizens for British companies.
@Fred. L. BTI issues shareholders in the US a 1099, correct?
purpleboarder profile picture
@Fred. L. Thanks for the correction. Maybe I'm confusing British companies w/ Canadian companies concerning tax withholdings? (Long ENB, RY, BNS)...
The one additional risk here that is more specific to BTI is if Biden bans menthol. That said, it almost seems at this price that the market is already baking that in.
@Fred. L. Ban menthol cigs but pot no big deal.
Total hypocrisy.
Tellurium128 profile picture
@Fred. L. Long live Menthol!
@Dick Hertz I agree.
Gulf Coast Gill profile picture
BTI semi-recently changed their dividend policy to have a consistent quarterly payout (in £), and to hopefully have more consistent annual dividend increases. You can see this yourself where they announced the payout for the next 4 dividend payments, including the upcoming three future payments, at the same rate. For US investors forex will definitely cause fluctuations in your payment in dollars, but BTI has been making changes to try to make their dividend more consistent.
@Gulf Coast Gill at the end of the day their income is worldwide. so even if your dividends are smaller, the company will be holding more $ for you. I wouldn't be too fixated on the dividend except it pays the bills while you wait.
Greenhorn Investor profile picture
Thank you for the article
With the P/E and the dividend yield both around 9, BTI is a great buy!
Bti is really good investment for me. Mo is superb too.
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