RE: are we braced for tomorrow everyone?15 Oct 2019 08:53
IC View
There does not appear to be any indication that Jack Bowles, successor to previous chief executive Nicandro Durante, will make any changes to the company’s current dividend policy of paying out at least 65 per cent of group earnings. A big fear for tobacco companies is tougher regulation, particularly in the US, where the Food and Drug Administration (FDA) has considered banning menthol cigarettes, limiting the amount of nicotine in combustible cigarettes, and investigating the health effects of vapour products. This could largely explain why shares across the tobacco sector have fallen so much over the past 12 months, with BATS currently trading at 2,973p or nine times forward earnings after falling by nearly a quarter over this time period. Despite its heightened exposure to the US following the Reynolds deal, we think cash flows will continue to support this income play, although any buyers must be comfortable with taking on this regulation risk. Buy.
Last IC View: Buy, 2,936p, 12 Jun 2019