British American Tobacco Still Undervalued

BAT share price fell sharply yesterday, but Morningstar analysts believe there is significant upside to tobacco valuations

Philip Gorham 17 October, 2018 | 12:21AM
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British American Tobacco Brand Lucky Strike

Morningstar analysts are retaining their £45 fair value estimate for British American Tobacco (BATS) following the company's brief trading update, despite a strong negative stock market reaction yesterday which took the share price down to £31.77. We continue to believe there is significant upside to tobacco valuations. Following the steep sell-off in BAT this year, we are constructive on the stock, which has a five-star rating from Morningstar and a wide economic moat, or strong competitive advantage.

We believe the three most significant items from BAT's update are: 1) next generation product sales such as vaping and heated tobacco are now expected to undershoot previous expectations, and the company is now guiding to £900m in revenue this year, down from the previous guidance of £1 billion; 2) currency is weighing on reported performance and 3) the recent double-digit earnings growth trend remains intact in the short term.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
British American Tobacco PLC2,641.50 GBX-0.62Rating

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Philip Gorham  

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