Shares of British American Tobacco or BAT (GB:BATS) (NYSE:BTI) rallied more than 7% after the company indicated that it is mulling a potential sale of some of its stake in India-based ITC. The news came along with the cigarette maker’s full-year results for 2023. BAT’s adjusted revenue increased 1.6% to £27.3 billion, driven by a 17.8% growth in revenue from new categories like vapes. Also, the company’s annual dividend increased 2% to 235.52p.
BAT Contemplates Sale of ITC Stake
BAT said that it regularly reviews its stake ITC as part of its efforts to strengthen its balance sheet. It has been “actively working” to complete the regulatory requirements that would allow it to sell some of its 29% stake in ITC.
The Dunhill-owner has been under pressure to sell its stake in ITC so that it can gain some funds to reduce its debt and reach its targeted leverage range at which can resume share buybacks. Indian conglomerate ITC has a presence in multiple businesses, including tobacco, hotels, and packaging.
BAT’s 2023 Results
On a reported basis, BAT slipped to a pre-tax loss of £17.06 billion in 2023 from a profit of £9.32 billion in the previous year due to a £27.6 billion impairment charge mainly associated with the company’s acquired U.S. combustibles brands. Excluding one-time charges, BAT’s operating profit increased 3.1% to £12.5 billion.
Meanwhile, the company continued to gain traction in non-combustibles, with the contribution from this category increasing 170 basis points to 16.5% of the overall revenue in 2023. While the new products drove BAT’s adjusted revenue higher in 2023, the top line was adversely impacted by the sale of the company’s operations in Russia and Belarus, currency headwinds, and lower cigarette volumes amid a growing shift to smokeless products.
Looking ahead, British American Tobacco is making investments to enhance its U.S. business and ramp up innovation. The company expects its 2024 performance to be hit by significant investments and macro challenges in the U.S. That said, the company is positive about making progress towards its goal of delivering organic growth of 3% to 5% and a mid-single-digit increase in adjusted organic operating profit by 2026 on a constant currency basis.
Is BAT a Good Stock to Buy?
With six Buys and five Holds, British American Tobacco stock scores a Moderate Buy consensus rating on TipRanks. The British American Tobacco share price target of 2.963p implies 19.3% upside potential. Shares have declined about 18% over the past year.
