British American Tobacco p.l.c. (NYSE: BTI ) is an international tobacco company that manufactures and sells tobacco products around the world. They have a strong portfolio of products that includes Vapor products, Heated products, Modern Oral products, Traditional Tobacco products, andI believe in fundamental analysis and disciplined market research. I have strong quant background with a Ph.D. (Chemical Engineering, University of California, Santa Barbara) in model predictive control and an MBA (Jones Scho ...

Group 1: Company Overview - British American Tobacco primarily operates as a tobacco company, with approximately 80% of its revenue derived from combustible tobacco products, predominantly cigarettes, which account for about 97% of the volume sold [2] - The addictive nature of nicotine allows British American Tobacco to maintain a steady consumer base, despite the classification of tobacco as a non-essential consumer staple [3] Group 2: Financial Performance - The company offers a high dividend yield of 7.1%, significantly above the broader market average of 1.2% and the consumer staples average of 2.6%, indicating potential risks associated with the investment [1] - In 2024, British American Tobacco's adjusted earnings payout ratio was approximately 66%, suggesting that the dividend is likely to remain safe in the near term [4] Group 3: Market Challenges - British American Tobacco faces a long-term decline in cigarette volumes, with a 5% drop in 2024, following declines of 5.3% in 2023 and 5.1% in 2022 [5] - The U.S. cigarette business experienced a significant volume decline of 10.1% in 2024, mirroring the struggles faced by Altria, which saw a 10.2% decline [6] Group 4: Strategic Considerations - Both British American Tobacco and Altria are attempting to offset volume declines through price increases, but this strategy may not be sustainable in the long run [7] - Investors should closely monitor volume trends in the U.S. market, as continued declines could signal deeper issues, especially if these trends affect the company's international operations [8][9] Group 5: Long-term Outlook - While the dividend appears secure for now, the ongoing decline in the U.S. market poses significant long-term risks, potentially impacting the company's ability to sustain its dividend [10]

Group 1 - The article emphasizes a dividend-focused value investment strategy that prioritizes capital preservation and steady income growth [1] - The investment approach involves holding high-quality value stocks that provide meaningful growth and long-term safety [1] - The author encourages engagement through direct messaging and social media to share insights on financial independence [1] Group 2 - The author has disclosed a beneficial long position in several stocks, indicating a personal investment strategy [2] - The article is presented as a personal opinion and does not involve compensation from companies mentioned [2] - The author clarifies that the content is for informational purposes and does not constitute investment or tax advice [3]

Group 1: Company Overview - British American Tobacco generates approximately 80% of its revenue from combustible products, with cigarettes accounting for 97% of the volume sold [2] - The company is facing a long-term decline in cigarette volumes, which fell by 5% in 2024, following decreases of 5.3% in 2023 and 5.1% in 2022 [4] Group 2: Industry Trends - The number of individuals using only combustible nicotine products in the U.S. has decreased from 34 million in 2019 to 28 million by the end of 2024, indicating a broader trend affecting the cigarette industry [3] - British American Tobacco is attempting to diversify its product offerings by investing in "new categories" such as vaping products, heated products, and pouches, which currently contribute nearly 20% of revenue [5] Group 3: Financial Performance - In 2024, British American Tobacco paid out more in dividends than it earned, resulting in a dividend payout ratio exceeding 100%. However, the adjusted earnings payout ratio stands at 66% [6][7] - The dividend consumed around two-thirds of the company's cash flow in 2024, suggesting that the dividend is sustainable for the time being [7] Group 4: Future Outlook - The new categories are expected to play a crucial role in offsetting declines in the core cigarette business, but they currently contribute only 2% of the company's profit from operations [8] - While the dividend is secure for now, the company faces a long-term challenge in transitioning away from cigarettes, and failure to successfully grow its non-combustible businesses could jeopardize the dividend in the future [9][10]

Core Insights - The individual has a strong interest in financial markets, particularly in fundamental analysis, which evaluates actual company performance rather than stock price movements [1] - The focus is primarily on long-term investments in stocks and ETFs, with a preference for US companies, while also analyzing European and Chinese firms [1] - The banking sector is highlighted as a key area of interest, as it is essential for understanding economic health [1] Investment Approach - The investment strategy is characterized by a contrarian view, indicating a willingness to go against prevailing market trends [1] - The individual emphasizes the importance of macroeconomics in investment decisions, suggesting a holistic approach to market analysis [1]

Summary of the Conference Call on Oral Tobacco Market Industry Overview - The oral tobacco market, particularly nicotine pouch products, is experiencing rapid expansion, with the U.S. market growing 300 times from 2016 to 2021 and seven times from 2019 to mid-2022, indicating high industry vitality. The global market size is expected to reach $20-30 billion by 2030 [1][4] Key Insights and Arguments - The production threshold for oral tobacco is relatively low, but high-quality product development requires significant R&D investment. Philip Morris International (PMI) plans to invest $1.5 billion in R&D by 2025, focusing on raw material processing, formula design, nicotine release technology, and flavor optimization [1][5] - The oral tobacco industry participants are mainly pharmaceutical companies and e-cigarette firms. Pharmaceutical companies like Jingcheng Rundu and Henuo have advantages in release technology and nicotine supply, while e-cigarette companies rely on overseas channels for market coverage [1][6] - The cost structure of oral tobacco products includes low costs for cellulose, nicotine, and flavoring agents, totaling approximately 0.5-0.9 RMB per box, while packaging and labeling costs are higher, around 1 RMB per box. The technology content of non-woven fabric affects taste and nicotine release [1][8] Market Pricing and Cost Distribution - The retail price of oral tobacco products ranges from $5 to $10, with brand manufacturers' ex-factory prices around $2-3 and contract manufacturers' prices between $0.7 and $1. The material cost is approximately $0.2-0.3 [1][8] Regulatory Environment - Global regulations on oral tobacco vary. In the U.S., the FDA regulates it, requiring PMTA certification; European countries have different policies, with some regulated as food and others as tobacco. China currently has a relatively lenient regulatory environment, making it easy to purchase through e-commerce platforms [3][9] Market Share and Competitive Landscape - Large traditional tobacco companies dominate the global vaping and oral tobacco market, holding an 80% market share, with PMI accounting for 50% and British American Tobacco for 20%. The concentration in the oral tobacco market is higher than in the vaping market, with large companies having advantages in scale and R&D [3][10] Growth Trends and Future Outlook - The oral tobacco market is projected to grow at a compound annual growth rate (CAGR) of 30% in the coming years, with recent growth rates around 50%. Despite the current small market size, it shows significant potential compared to the $1 trillion traditional tobacco market [4][12] - PMI is the only nicotine pouch supplier in the U.S. that has passed FDA review, with total sales of 1 billion cans in 2024, of which nicotine pouches account for about 60%, achieving a 50% year-on-year growth [13] Domestic Market Developments - Domestic companies like Jingcheng Rundu are beginning to ramp up production, with expectations to reach 1-10 million boxes in the latter half of 2025. The rapid growth in overseas demand is increasing orders for domestic contract manufacturers [14][15] Conclusion - The oral tobacco market is characterized by high growth potential, significant R&D investment requirements, and a competitive landscape dominated by large traditional tobacco companies. The regulatory environment varies globally, impacting market dynamics. The focus should be on how domestic manufacturers can penetrate the overseas market and the overall supply capacity to meet rising demand [16]

Group 1 - The article emphasizes the importance of delivering alpha-generating investment ideas through a structured and evidence-based approach [1] - The author adopts a generalist investment strategy, exploring various sectors with perceived alpha potential compared to the S&P 500 [1] - Typical holding periods for investments range from a few quarters to multiple years, indicating a long-term investment perspective [1] Group 2 - The author has disclosed no current positions in the mentioned companies but may initiate a long position in BTI within the next 72 hours [2] - The article reflects the author's personal opinions and is not influenced by any compensation from companies mentioned [2] - There is a note that past performance does not guarantee future results, highlighting the inherent uncertainties in investment [3]

Group 1 - The article discusses the author's significant investment in British American Tobacco (NYSE: BTI), highlighting it as the largest holding in their personal portfolio [1] - The author emphasizes a long-term investment perspective, noting that it has been nearly six months since the last article on BTI was published [1] Group 2 - The author identifies as a seasoned value investor with nearly 20 years of experience, focusing on undervalued companies that provide a margin of safety and attractive dividend yields [2] - The investment strategy includes a global approach without sector or country limitations, concentrating on companies with solid earnings and future growth potential [2] - A specific interest is noted in companies trading at less than 8 times free cash flow, which reflects a disciplined investment philosophy [2]

Group 1 - The tobacco sector represents a significant portion of the author's personal investment portfolio, with a specific focus on Philip Morris (NYSE: PM) which has not been previously analyzed in detail [1] - The author emphasizes the importance of identifying undervalued companies with strong earnings potential, particularly those trading at low multiples of free cash flow, which aligns with a value investment strategy [2]

Core Insights - Altria and British American Tobacco offer attractive yields of 7.4% and 7.7% respectively, significantly higher than the S&P 500's 1.2% and the average consumer staples yield of 2.7% [1] - Both companies face a long-term decline in cigarette volumes, with Altria experiencing a more severe decline compared to British American Tobacco [2][4] Volume Trends - Altria's cigarette volume declined by 9.7% in 2022, 9.9% in 2023, and is projected to decline by 10.2% in 2024, indicating a worsening trend [3] - British American Tobacco's volume declined by 5.1% in 2022, 5.3% in 2023, and 5% in 2024, with the latter two figures excluding the impact of the sale of its Russian and Belarus businesses [4] Business Strategies - Both companies have responded to declining volumes by raising prices, which has allowed them to maintain and even grow dividends despite losing customers [5] - British American Tobacco's global diversification has helped mitigate the impact of volume declines, but it has acknowledged significant challenges in the U.S. market [6] Future Outlook - The tobacco industry faces a bleak future unless new growth platforms are identified to replace declining cigarette operations [7] - Both companies are exploring new business opportunities, such as vaping and pouches, to address the challenges posed by declining cigarette sales [8] Investment Considerations - For short-term income investors, British American Tobacco may be the preferred choice due to its higher yield and better volume performance [9] - Long-term investors may find both companies lacking in fundamental strength to justify investment in the tobacco sector [9]