British American Tobacco goes smokeless – can it survive?

British American Tobacco’s core product is struggling, but new areas bode well, says Bruce Packard

British American Tobacco Plc Research and Developments Labs
(Image credit: Luke MacGregor/Bloomberg via Getty Images)

If financial markets were efficient, then shares would not trade below their intrinsic worth and value investing would not exist. Similarly, if human beings were rational, then they would not smoke cigarettes. We have known for decades that markets are not as efficient as economists’ theories pretend, while there is a link between smoking and serious health problems. Yet undervalued shares and tobacco companies do exist.

Shares in British American Tobacco (LSE: BATS) are trading on seven times next year’s forecast earnings and offer a dividend yield of just over 9%; the company aims to buy back £700 million of shares in 2024, rising to £900 million in 2025. These numbers suggest that BATS has all the features of a traditional “value stock”.

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Bruce Packard
Contributor

Bruce is a self-invested, low-frequency, buy-and-hold investor focused on quality. A former equity analyst, specialising in UK banks, Bruce now writes for MoneyWeek and Sharepad. He also does his own investing, and enjoy beach volleyball in my spare time. Bruce co-hosts the Investors' Roundtable Podcast with Roland Head, Mark Simpson and Maynard Paton.