3 Things To Loathe About British American Tobacco plc

Do these three things make British American Tobacco plc (LON:BATS) a poor investment?

| 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.

There are things to love and loathe about most companies. Today, I’m going to tell you about three things to loathe about British American Tobacco (LSE: BATS) (NYSE: BTI.US).

I’ll also be asking whether these negative factors make the FTSE 100 tobacco giant a poor investment today.


Let’s do the obvious loathe first. BAT’s products kill people; and the company and its shareholders profit from it. Most smokers get hooked as kids — a time in life’s journey not particularly associated with making informed personal choices about the long-term future.

The educated classes of the developed world are turning away from tobacco. BAT and other fags firms have moved aggressively into emerging markets to drive their growth. Even allowing for increasing population, the spread of education will surely take its toll on tobacco sales sooner or later.


Counterfeit products that can be almost impossible to tell from the real thing harm BAT’s sales. As do “lookalikes”: for example, BAT’s State Express 555 brand may be mimicked but the numbers changed to “999”.

BAT’s last annual report is riddled with references to lower volumes due to increases in illicit trade. Indeed, the company puts illicit trade first within the “Key Group risk factors” section of its annual report saying this “continues to represent a significant and growing threat to the legitimate tobacco industry”.

Relative value

At a current share price of 3,546p, BAT is trading at 15.9 times this year’s forecast earnings with a prospective dividend yield of 4.2%. The earnings rating is on a par with the FTSE 100 average, while the income is a full 1% higher.

But BAT looks less attractive on those value measures when compared with Footsie peer Imperial Tobacco. The latter’s shares are currently trading at 2,223p, offering a multiple of just 10.6 times forecast earnings and a forward yield of 5.4%.

A poor investment?

I don’t think the three reasons I’ve given to loathe BAT necessarily make the company a poor investment.

First, I believe it will be many decades before the spread of education through the undeveloped world will take its toll on tobacco sales.

Second, it’s been claimed that tobacco companies are overstating the threat of illicit trade as a lever to lobby governments for lower taxes.

And third, while BAT looks relatively poor value against Imperial Tobacco on price-to-earnings and yield, it has a number of other things in its favour, including superior geographical diversity. Remember, too, that despite its higher rating than Imperial, BAT still looks reasonable value against the wider market, particularly on income.

One savvy investor who has made BAT his largest tobacco-company bet is City legend Neil Woodford. Woodford has massively outperformed the market for a quarter of a century, so his big stock picks are always worth close consideration.

You can do just that by reading all about eight of the investing wizard’s favourite blue chips in this free and exclusive Motley Fool report.

To download the free report right now with no further obligation, simply click here.

> G A Chester does not own any shares mentioned in this article.

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.

More on Investing Articles

Fireworks display in the shape of willow at Newcastle, Co. Down , Northern Ireland at Halloween.
Investing Articles

2 top growth shares I’d buy for the second half of 2024!

Looking for the best growth shares to buy? These FTSE 250 and small-cap shares have significant share price potential, according…

Read more »

Investing For Beginners

How to try and build a £250k Stocks and Shares ISA from scratch, starting in 2024

With a regular savings plan and a smart investment strategy, it’s possible to build wealth within a Stocks and Shares…

Read more »

Investing Articles

I’m considering 3 top UK dividend stocks for my portfolio this July

Mark David Hartley is looking at adding a few dividend stocks to his portfolio this month. Will these three shares…

Read more »

Investing Articles

3 FTSE 100 shares I’d buy to create lasting passive income

Dividend stocks are a great way to build an additional income. Our writer details three FTSE 100 picks she’d love…

Read more »

Investing Articles

After falling 9% in 6 weeks, is this FTSE 100 stock now in bargain territory?

The BAE Systems share price hit a 52-week high on 3 June. Six weeks later, it’s down nearly 10%. Is…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

I love the look of Entain shares, potentially 47% undervalued

Many FTSE 100 companies have been on a tear in 2024, but with Entain shares down nearly 50%, I think…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

Could Aviva shares reach £5.84 in the next 12 months?

Some analysts think Aviva shares could soar nearly 19% in the next year. This Fool takes a closer look to…

Read more »

Investing Articles

I’m looking at a once-in-a-decade chance to buy dirt-cheap FTSE dividend shares

Harvey Jones says FTSE 100 dividend shares have been showing signs of life lately but they're still cheap and there's…

Read more »