British American Tobacco: Growing Leader at Double-Digit FCF Yield

Marta Escribano of Salmon Mundi Capital presented her investment thesis on British American Tobacco (UK: BATS) at European Investing Summit 2021.

Thesis summary:

British American Tobacco is the second-largest global tobacco industry manufacturer, with ~22% market share. The company has a powerful cigarette business, owning six of the thirteen most-sold brands worldwide. BAT leads the tobacco industry in pricing power (+9% in 2019, +7% in 2020), which should allow the company to keep growing profits in the years to come.

Slightly more than one-half of the company’s EBIT comes from the US, an attractive and profitable market, as raising prices in the country is quite easy due to the high affordability by US tobacco consumers.

In Marta’s view, BAT is a defensive stock that offers strong cash flow visibility resulting from the company’s solid market positioning and also due to high entry barriers as well as the oligopolistic structure of the tobacco industry. The recent market valuation of the shares is highly attractive. In addition, the stock offers a ~7.7% dividend yield, one of the highest yields in the FTSE 100 index.

Read a related article by Marta on contrarian investment opportunities.

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About the instructor:

Marta Escribano is partner and principal analyst of Salmón Mundi. She has been working in financial markets for 14 years. She became principal analyst in 2013. Formerly she worked in the Treasury Department of Banco Popular at the FX and fixed income desk. Before that, she had joined the Treasury of Inversis Bank and the international equity desk of Interdin as equity sales trader advising mostly Swiss and Italian clients. Since the beginning of her professional career she has been passionate about financial markets and the Austrian School of Economics. She holds a Bachelor´s Degree in Law from the Universidad Pontificia Comillas (ICADE) and a Master’s Degree in Financial Markets and Alternative Investments (MFIA).

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