Finding Opportunity in Challenging Times
Investing in the stock market can often feel like treading the unpredictable waters of the high seas. Sometimes, storms and uncertainties render a company’s stock as battered and beaten as a drenched sailor on a rocky shoreline. One such company weathering the tempest is British American Tobacco (NYSE:BTI). Despite the recent turbulence, we see a glint of opportunity in the midst of the chaos.
A Storm of Adversity
Make no mistake, British American Tobacco has faced a deluge of challenges. Years of regulatory pressure, struggles to tap into new markets, and a formidable debt burden have left the company awash in uncertainty. The revaluation of some U.S. cigarette brands and a whopping non-cash impairment charge of $31.5 billion, coupled with the ongoing regulatory push against combustible tobacco, have driven the stock to historically low levels. The company’s forays into smokeless technologies have not shielded it from the relentless waves of industry headwinds.
Setting Sail Towards Profitability
Despite the raging tempest, opportunities for growth and resurgence are on the horizon. As we glance ahead, there are silver linings amidst the heavy clouds. The company’s investments in new nicotine delivery technologies are projected to propel revenue growth by 5% annually, with a corresponding 3-7% profit growth. Moreover, with a strategic shift away from traditional cigarettes, British American Tobacco aims to capture a 50% market share in the non-combustible product sector by 2024.
Weathering the Storm
While industry volumes might be down, the company’s strong foothold in new categories such as vapor liquids, exemplified by the robust performance of its Vuse product, are encouraging signs. As adult smokers increasingly switch to Vapor, the company is forging ahead in a growth trajectory, bolstered by rising market shares and sustained revenue expansion. Despite the controversy surrounding vaping, the company’s success in this domain is a testament to its resilience in adapting to evolving consumer preferences.
A Beacon of Value in Turbulent Waters
Amid the market chaos, British American Tobacco’s valuation is historically low, with an EV/EBITDA of 6.7x and promising price-to-earnings and price-to-free cash flow ratios. The palpable sense of uncertainty surrounding its pivot towards becoming a ‘smokeless’ company has obscured its intrinsic value. Nevertheless, we discern a glimmer of opportunity amidst the prevailing skepticism.
