BATS: Future Returns Will Reflect Smoke-Free Shift And Deleveraging Focus

Analysts have raised their price target for British American Tobacco by approximately $1.08, citing modest improvements in projected revenue growth, profit margins, and future valuation multiples that collectively support a slightly higher fair value estimate.

What's in the News

• Issued 2025 guidance for around 2% group revenue growth at constant rates, with mid single digit revenue growth expected from New Category products, signaling modest acceleration in smoke-free offerings (company guidance).
• Reaffirmed 2026 mid term growth algorithm of 3% to 5% revenue growth, but indicated results are now expected toward the lower end of that range, underscoring a cautious outlook in core markets (company guidance).
• Announced plans to sell between 7% and up to its full 15.3% stake in ITC Hotels Limited via an accelerated bookbuild, as BAT exits a non strategic holding to streamline the portfolio (company statement).
• Stated that proceeds from the ITC Hotels stake sale will be used to move leverage into a target range of 2 to 2.5 times adjusted net debt to adjusted EBITDA by the end of 2026, highlighting ongoing balance sheet de risking (company statement).

Valuation Changes

• The Fair Value Estimate has risen slightly from $43.63 to about $44.71 per share, reflecting a modestly higher intrinsic valuation.
• The Discount Rate has fallen marginally from approximately 8.47% to about 8.41%, indicating a slightly lower perceived risk profile in the cash flow discounting.
• The Revenue Growth Assumption has increased moderately from roughly 2.36% to about 2.73% per year, pointing to a somewhat stronger long term growth outlook.
• The Net Profit Margin Forecast has edged up from around 29.72% to about 29.79%, implying a small improvement in expected operating profitability.
• The Future P/E Multiple has risen slightly from about 14.80x to approximately 14.94x, suggesting a modestly higher valuation multiple applied to expected earnings.