Stockchase Insights British American Tobacco BTI-N HOLD Aug 25, 2025

The sector has been re-rated somewhat, and investors are anticipating lower interest rates going foward. In its recent earnings release, BAT indicated organic revenue growth would land at the top of its 1-2% range. Though not a formal guidance raise, the comment implies modest improvement. However, organic operating profit guidance was held at 1.5-2.5% -- a clear sign the company will continue investing in its next generation platform. With consumers adopting new products quickly and competition intensifying, sustained R&D is essential. To fund this, BAT must keep maximizing profits from its traditional cigarette business, now aided by a recovery in US revenues, the first positive result since 2022. The company maintained it guidance on currency, with a transactional headwind of 1.5% and translation hit of 4%. Consensus now sees adjusted EPS declining mid-single digits, partly offset by share buybacks. Valuation has gone from about 8X earnings to 12X earnings, with the dividend now 5.01%. Business is improving somewhat, but the usual risks remain. We would consider the 72% one-year gain 'a bit much' here and certainly would not expect these returns to be sustainable. While we would still consider it a solid income stock, we would be fine taking some off the table. 
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