Our opinion on the current state of BATS(BTI)British American Tobacco (BTI) describes itself as a "leading consumer goods company" - which is a euphemistic way of saying that they produce and sell an enormous number of cigarettes and related products worldwide. It is also the second-largest company on the JSE after Naspers.
In recent decades, cigarette companies have become increasingly oppressed. Their ability to advertise their products and even package them has been severely curtailed in many countries. They are seen to be exploiting an addiction that is clearly anti-social and very bad for the individual's health, regularly involving them in lawsuits for damages.
BAT owns well-known brands like Camel, Peter Stuyvesant, Rothmans, Benson & Hedges, Dunhill, Pall Mall, Kent, and Lucky Strike. In an effort to get away from the negative perceptions of cigarettes, the company has diversified into "new category" products such as vaping and electronic cigarettes, which it claims offer a long-term prospect for growth.
Recently, especially in the United States, these products have also come under the spotlight for health reasons, leading to a drop-off in sales.
As an investment, the company offers some attractions. Roughly 20% of the world's population still smokes, making a truly massive market. Setting aside our distaste for the business which BAT conducts, the share looks like very good value at current levels. This is one of the shares that has performed well and perhaps even benefited from COVID-19.
The CEO says that he aims to double non-combustible sales by the 2023/24 year. It is interesting that BAT considers South Africa's illegal cigarette market to be the largest in the world.
On 6th December 2023, *Business Day* reported that BAT had impaired its US operations by GBP25bn (R595bn), leading to a drop of 10% in the BTI share price.
In its results for the year to 31st December 2024, the company reported revenue down 5.2% with organic revenue up 1.3%, driven by New Categories, which was up 8.9%.
The company said, "Reported profit from operations of £2,736m (2023: loss of £15,751m) with 2024 including a provision of £6.2 billion in respect of the proposed settlement in Canada, while 2023 was negatively impacted by one-off impairment charges largely in the U.S. Adjusted organic profit from operations up 1.4% (at constant rates), driven by AME and APMEA."
The share has basically been moving sideways for several years. We do not regard it as a good long-term investment.