Ricardo Pillai
3 min read
In This Article:
We came across a bullish thesis on British American Tobacco p.l.c. (BTI) on Next Gen Investors Endowment’s Substack by Judah Kang. In this article, we will summarize the bulls’ thesis on BTI. British American Tobacco p.l.c. (BTI)'s share was trading at $48.6 as of 12th June. BTI’s trailing and forward P/E were 26.34 and 10.26 respectively according to Yahoo Finance.
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British American Tobacco (BTI) presents a compelling investment opportunity, anchored by strong cash flows, disciplined capital allocation, and a focused transition strategy toward reduced-risk products (RRPs). While Combustibles still dominate revenue, BTI’s New Categories—Vapour, Heated Tobacco, and Modern Oral—have reached 17.5% of sales, reflecting meaningful progress.
The company’s ambition to reach 50% of revenue from Smokeless by 2035 is underpinned by rising category adoption, especially in growth regions across APMEA and Latin America. Combined with BTI’s pricing power in premium Combustibles markets like the U.S., this shift helps preserve margins, enabling a generous and sustainable 7.4% dividend yield backed by strong free cash flow.
BTI is also proactively repositioning itself as a sustainability leader despite operating in a sin industry. Its climate strategy targets carbon neutrality by 2030 (Scopes 1 and 2) and net-zero by 2050, aligning with Paris Agreement goals. BTI’s 30% emissions reduction since 2017 and alignment with TCFD, GRI, and CSRD frameworks enhance its credibility among ESG-focused investors. Its robust environmental governance and responsible agriculture practices further support long-term resilience.
Valuation-wise, a two-stage dividend discount model incorporating a conservative -1.0% terminal growth rate—factoring in secular declines in tobacco—yields an intrinsic value of £36.90 ($47.24), implying 12.6% upside. Relative valuation is inappropriate given BTI’s litigation exposure, asset structure, and unique global footprint. While regulatory and execution risks remain, they appear priced in. BTI offers a rare combination of income, ESG progress, and emerging-market growth optionality in the global nicotine transition.
Previously, we highlighted a bullish thesis on BTI by Brian Coughlin, spotlighting Velo’s explosive growth, pricing edge over Zyn, and potential for rerating as nicotine pouches scale. The stock has since then appreciated by approximately 16%. Judah Kang echoes this optimism but frames BTI as a cash-rich, ESG-aware income compounder, citing its 50% smokeless revenue goal, sustainability progress, and attractive 7.4% yield with modest upside.
