British American Tobacco Q2 Preview: Rich Yields And Growing Bullish Support - Reiterate Buy

Core Viewpoint - British American Tobacco p.l.c. (BTI) continues to present a compelling investment opportunity due to its strong financial performance, particularly in the New Category segment, which has achieved positive margins for the first time [2][8] Group 1: Financial Performance and Stock Returns - BTI's stock has delivered a return of +10.1% and total returns of +12.8% (including dividends) since April 2024, outperforming the wider market's +7.7% [2] - The company reported robust FY2023 financial metrics, with a significant increase in Free Cash Flow and a healthier balance sheet [2] - BTI's forward P/E valuation stands at 6.91x, significantly lower than peers like Philip Morris (PM) at 16.61x, indicating potential undervaluation [6] Group 2: Market Position and Competition - BTI's Vuse maintains a leading market share of 41.1% in the e-cigarette segment, although it has seen a slight decline due to competition from illicit products [3] - The US government has initiated a task force to combat illegal e-cigarette sales, which may improve Vuse's sales in H2'24 [3] - Competition is expected to increase with Philip Morris' IQOS gaining market share globally and Altria's recent FDA approvals for menthol-flavored products [4] Group 3: Growth Opportunities in Oral Tobacco - BTI's Velo has experienced impressive growth, with volumes sold increasing by +34.4% YoY and revenues by +38.9% YoY in FY2023 [9] - The oral tobacco segment is projected to grow significantly, with market analysts expecting a CAGR of +30% through 2030, providing a growth driver for BTI [9] - BTI aims for £5B in New Category revenue by 2025, building on a £398 million increase to Group profit in FY2023 [6] Group 4: Shareholder Returns and Future Outlook - BTI offers a forward dividend yield of 9.22%, significantly higher than its peers, enhancing its attractiveness as a dividend stock [13] - The company has announced a £700M share repurchase program for 2024 and £900M for 2025, reflecting strong shareholder return strategies [13] - The stock is projected to appreciate by +35% to a long-term price target of $44.10, reinforcing the investment thesis [13]