The FTSE 100’s Hottest Growth Stocks: British American Tobacco plc

Royston Wild explains why British American Tobacco plc (LON: BATS) is an exceptional earnings selection.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Today I am outlining why British American Tobacco (LSE: BATS) (NYSE: BTI.US) could be considered a terrific stock for growth hunters.

Earnings expansion grinding to a halt

The addictive nature of tobacco smoking means that British American Tobacco and its peers have long been favourites for those seeking reliable earnings and dividend expansion. Indeed, the London-based firm’s earnings’ record over the past five years alone pays testament to this, with earnings rising at a compound annual growth rate of 9% since 2009.

But more recesmokingntly the impact of macroeconomic turmoil on customers’ wallets, growing concerns over the health implications of tobacco smoking, a rising black market, and the introduction of a raft of anti-smoking legislation in key markets has caused earnings increases to slow markedly.

These issues are expected to result in British American Tobacco’s first earnings dip for many moons, and a 3% decline, to 211.8p per share, has been pencilled in for this year by City analysts.

… but e-cigs should blast growth higher

Still, I believe that the cigarette giant is in terrific shape to punch robust earnings growth over the longer-term. Indeed, forecasters currently expect British American Tobacco’s resurgence to kick off from next year, when a 9% advance is anticipated, taking earnings to 230.1p per share.

The business has several levers that it can pull to help drive group sales higher in coming years, the most exciting of which is its position at the coalface of e-cigarette technology. British American Tobacco launched its Vype product last July, after it acquired vapouriser developers CN Creative in late 2012, and has aggressively ramped up marketing spend and retail distribution in recent months to boost the new technology’s profile.

With a host of product innovations and roll-outs also apparently scheduled from next year, British American Tobacco is firmly nailing its colours to the e-cigarette mast, as smokers seek an alternative to traditional products. The debate rages on over how much safer the new products are than conventional cigarettes, but booming demand — worldwide sales clocked in at $3bn in 2013 — suggests that users are certainly convinced by the benefits of the revolutionary technology.

On top of this, I reckon that the firm’s stable of traditional tobacco products — including the likes of prestigious labels Lucky Strike and Dunhill — should enjoy splendid revenues growth once pressure on consumers’ wallets in crucial emerging markets eases. The regions of Latin America and Asia are home to the lion’s share of the world’s smokers, and I believe that rising population levels and increased spending power here should underpin long-term sales expansion.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »