As I write, the British American Tobacco (LSE: BATS) share price is up 2.5% in morning trading following the release of the firm’s half-year results.
The stock’s been gaining good ground in 2024, rising 12.9%. That said, it’s still down 12.8% over the last five years.
I already own some shares. But after its latest update, is it time to buy more? And is British American Tobacco a stock that investors should consider buying today?
Should you invest £1,000 in British American Tobacco right now?
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Declining revenues
On the surface, its results may not look great. After all, revenue for the period fell 8.2%, or 3.7% at a constant exchange rate, due to the sale of its businesses in Russia and Belarus in September 2023 and its implications.
Furthermore, operating profit fell by 28.3% due to higher amortisation charges for its US brands.
‘Building a Smokeless World’
But even so, there were still plenty of positives to take away. For example, British American Tobacco continues to make good strides with its aim of ‘Building a Smokeless World’.
It added 1.4m consumers to its Smokeless brands, up to 26.4m. It now accounts for 17.9% of group revenue, a 1.4% increase from the same period last year.
Nevertheless, it still faced challenges, with revenue from New Categories declining 0.4% to £1.7bn.
Share buybacks
Even so, I suspect a lot of investors, myself included, own the stock for the meaty income on offer. That’s why many would have been pleased to see the firm announce a fresh share buyback scheme.
Reinforcing that it “understands the importance of cash returns to shareholders” and that it remains “committed to our progressive dividend based upon 65% of long-term sustainable earnings”, the business announced it would buy back £700m worth of shares in 2024 and £900m in 2025.
That has been funded by the partial sale of its ownership in Indian conglomerate ITC. Its stake now sits at 25.5%, down from 29%.
What’s more, the stock has the fourth-highest dividend yield on the FTSE 100, sporting an 8.9% payout. British American Tobacco expects to generate around £40bn of free cash flow over the next five years. That will support the business in continuing to reward investors.
Valuation
Alongside that, I see good value in its share price today. With its earnings per share rising 13.9% to 201.1p, the stock now trades on a price-to-earnings ratio of 13. That’s below the Footsie long-term average of around 15.
Time to buy?
British American Tobacco’s latest update’s encouraging. And if I had the cash, I’d happily buy more shares today.
Declining revenues are a stark reminder of the risks the group faces moving forward. Smoking’s a habit that continues to become increasingly unpopular and the business will continue to come under pressure from greater regulation of the industry.
Its results also criticised the US authorities for a “continued lack of enforcement against illicit single-use vapour products” and the effect that has had on its earnings.
But there’s an attractive combination on offer of a cheap valuation and high yield. And with British American Tobacco on track to achieve its full-year guidance, I’m optimistic its share price can keep up that momentum this year.
