BAT's new CEO, Tadeu Marroco, took office in May 2023 and is confident he will steer the company through the challenges despite BAT losing a large market share in the US.
BAT supports communities in afforestation and environmental protection
Since taking the helm, Tadeu Marroco has overhauled the management structure to build a reliable top team. A key part of the group's strategy is the development of the "New Portfolio" business, which promised investors a profit by 2025. Marroco has now accelerated this target. He told investors that he is confident that "New Portfolio" will be a positive contributor by 2024.
BAT’s New Portfolio is expected to generate nearly £3 billion in revenue by 2022, so the company’s £5 billion target by 2025 is realistic and achievable. At its current price of around $33, BAT shares are yielding nearly 9.5% and trading at less than seven times forward earnings.
BAT Group improved its adjusted operating profit margin by 150 basis points and delivered another year of 100% operating cash conversion. BAT returned £6.9 billion to shareholders through dividends and share buybacks.
BAT's revenue target is £5 billion by 2025. BAT currently employs over 50,000 people worldwide , generating revenue of £27.65 billion by 2022 and operating profit of £10.5 billion.
BAT remains confident about its growth trajectory in 2023, which represents both movement and challenges. However, investors are likely to focus on BAT’s margins in the medium term as it transitions its business model to new products.
Analysts' revised estimates show that BAT's reported adjusted EBIT margin (based on S&P Cap IQ data) bottomed out in the first half of 2023. Accordingly, BAT's adjusted EBIT margin fell from 46.8% in the first half of 2022 to 44.8% in the first half of 2023. However, the figure is still much higher than last year's 42.7%, suggesting that BAT's margins are not expected to deteriorate further.
Looking beyond FY25, BAT is expected to maintain growth in its profit margins, reaching 46.1% in FY25. With a forward EBITDA multiple of 7.1x, BAT shares are still significantly cheaper than the average of 11.3x over the past 10 years. Coupled with a strong forward dividend yield of 8.9%, the stock offers holders significant downside protection as the company transforms its business.
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