Stock in Focus: British American Tobacco

Powerful intangible assets are at the core of British American Tobacco's competitive advantage over peers - making it difficult for new entrants to compete

Philip Gorham 29 July, 2015 | 3:25PM

Following first-half results, which were very close to our expectations, we are reiterating our GBX £37.50 fair value estimate for British American Tobacco. We expect revenue to fall by 8.6% this year, driven by currency movements, and we forecast a modest rebound in 2016.

British American Tobacco (BATS) has one of the widest economic moats in our consumer defensive coverage, with strong brand loyalty and cost advantages key to its competitive positioning. As a result, the firm consistently generates adjusted returns on invested capital of almost 30%.

The two major pillars of its strategy are product innovation and cost reduction, and while we recognize the importance of each strategy, we suspect the two might be difficult to achieve simultaneously. Nevertheless, we hold the business in very high regard and would be buyers of the stock at a discount to our fair value estimate.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
British American Tobacco PLC2,677.00 GBX0.15

About Author

Philip Gorham  

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