Down 38%, is this one of the FTSE 100’s greatest value shares?
Another solid trading statement has just propelled British American Tobacco‘s (LSE:BATS) share price to new multi-year peaks. Total gains since the start of 2025 are 18%, making it one of the FTSE 100‘s best performing shares over the period.
Yet at £34.97, the tobacco titan remains 38% lower than the record peak of £56.44 struck in the summer of 2017. And as the broader tobacco industry remains in steady decline, doubts persist over whether it will ever reclaim those heights.
British American’s first-half update on Tuesday (3 June) gave more optimistic investors reason for cheer. The firm upgraded its sales guidance thanks to strong momemtum among its non-combustible products.
Mark Crouch, analyst at eToro, noted that
Investors don’t seem put off by the long-term global decline in smoking rates and are instead placing their faith in [British American’s] transition to smokeless alternatives.
So should investors consider opening a position in the FTSE company?
Sales upgrade
In this week’s update, British American said that sales for the first half of 2025 are so far “slightly ahead of our previous guidance“, meaning full-year growth is now tipped at 1%-2%, up from 1% previously.
Critically in the US, its largest single market, the business said it expects to return to growth for January-June as well as for the full year. Though the wider combustibles industry continued to decline (down 9% in the first half), the business said “we have stabilised our total industry volume and value share“.
Among British American’s smokeless ranges, performance was strong among its Velo nicotine pouches. Industry growth and volume share gains (up 350 basis points in the modern oral segment, to 29.7%) resulted in double-digit turnover growth.
However, sales were far less impressive for its Vuse e-cigarette brand — the firm’s expecting a “mid-teens revenue decline” for the first half, reflecting the widescale use of illicit single-use vapes in the US and Canada.
Big risks
The market may have broadly liked what British American had to say. But I remain far from convinced by what I see.
Without doubt, the company’s next-generation technologies are the key to future earnings. Yet sales of Vuse remain under intense pressure from the illegal e-cigs market, and while Velo revenues are booming this remains a tiny part of the overall business.
What’s more, tightening regulations on their sale and usage pose another significant threat to their widescale adoption, as the severe decline in the traditional cigarette market shows. With their far weaker margins, British American’s future profitability may disappoint even if demand for Vuse et al lights up.
According to eToro’s Mark Crouch:
It’s important not to overlook the scale of the challenge ahead… combustible tobacco products still account for over 80% [of revenues], and the company’s ambition to become “smokeless” by 2035 raises questions about whether new categories can generate comparable returns.
Today, British American Tobacco shares trade on a forward price-to-earnings (P/E) ratio of 10 times. This is just below the decade-long a average of 10.9 times, but still not cheap enough given the company’s enormous risk profile, in my view. I think investors should consider giving the business a wide berth.
The post Down 38%, is this one of the FTSE 100’s greatest value shares? appeared first on The Motley Fool UK.
Should you buy British American Tobacco shares today?
Before you decide, please take a moment to review this first.
Because my colleague Mark Rogers – The Motley Fool UK’s Director of Investing – has released this special report.
It’s called ‘5 Stocks for Trying to Build Wealth After 50’.
And it’s yours, free.
Of course, the decade ahead looks hazardous. What with inflation recently hitting 40-year highs, a ‘cost of living crisis’ and threat of a new Cold War, knowing where to invest has never been trickier.
And yet, despite the UK stock market recently hitting a new all-time high, Mark and his team think many shares still trade at a substantial discount, offering savvy investors plenty of potential opportunities to strike.
That’s why now could be an ideal time to secure this valuable investment research.
Mark’s ‘Foolish’ analysts have scoured the markets low and high.
This special report reveals 5 of his favourite long-term ‘Buys’.
Please, don’t make any big decisions before seeing them.
More reading
- This FTSE 100 stock goes ex-dividend on 26 June — time to bag a 6.9% yield?
- Here’s a way to aim for a £5,000 or more annual income from a Stocks and Shares ISA
- 2 FTSE 100 stocks with low P/Es and huge dividend yields!
- How much passive income could a £20k ISA generate in a year?
- ChatGPT thinks these are the 3 best high-yield dividend stocks to buy today
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended British American Tobacco P.l.c. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
