Couple that with inflation-wary investors prioritising dividends, and companies like $102 billion British American Tobacco and $164 billion Philip Morris International are on a tear. Cementing those gains requires a post-smoking transition plan.
The stock market’s inflation-phobia helps. Tobacco stocks have been insulated from the recent selloff because they pay high dividends. When inflation’s taking root, profits received today are more attractive than a windfall five years hence. BAT is up 30% since the start of December. PMI has gained 24%.
Hence its 13 times forward EBITDA valuation. BAT Chief Executive Jack Bowles hopes to generate a more modest 5 billion pounds in so-called “new category” revenue in 2025 – about a sixth of its forecast total. Hence why BAT is trading on a lower 9 times multiple. On Friday the company said 12% of sales were from non-combustible products, from just 4% in 2017.
The $23 billion London-listed purveyor of Gauloises hasn’t set revenue targets, aiming only for a “distinctive presence” in non-smoking products. After a 17% jump since December, its shares are now trading on 7 times EBITDA. Investors should not take that as a sign of long-term good health.– British American Tobacco said on Feb. 11 that adjusted revenue rose 7% to 26 billion pounds last year, broadly in line with analyst consensus supplied by the company.