3 Things to Love About British American Tobacco

LONDON -- There are things to love and loathe about most companies. Today, I'm going to tell you about three things to love about British American Tobacco  (LSE: BATS  ) (NYSEMKT: BTI  ) .

I'll also be asking whether these positive factors make the FTSE 100's biggest tobacco company a good investment today.

Long-term outperformance
British American Tobacco (BAT) has been a top FTSE 100 long-term performer. The company has delivered shareholders an annualized return of 21% over the last 10 years compared with 9% for the market as a whole. The five-year figures are 17% and 6%, respectively.

The company, which counts Dunhill, Kent, Lucky Strike, and Pall Mall among its top-selling brands, has continued to thrive through litigation and regulation scares, rewarding shareholders year after year.

Defensive
The manner in which BAT has rewarded shareholders is as impressive as the magnitude of the returns.

Companies in so-called "defensive" sectors generally cope better than companies in "cyclical" sectors in a recessionary environment, because they supply things people can't do without. Tobacco is a defensive company par excellence.

Between October 2007 and March 2009 -- less than 18 months -- the FTSE 100 dived a whopping 48%. Over the same period, BAT's shares fell just 4%, giving shareholders no cause to lose any sleep.

Global
BAT is the most international tobacco company in the world. As the table below shows, revenues are divided pretty equally across four regions that cover the entire globe.

Region

Revenue (billion pounds)

Proportion of total revenue (%)

Asia-Pacific

4.2

28

Eastern Europe, Middle East, and Africa

4.1

27

Americas

3.5

23

Western Europe

3.4

22

Total

15.2

100

BAT's global reach means it has substantial exposure to fast-growing developing markets. These give the company a powerful engine to drive future shareholder returns.

A good investment?
BAT has been a huge success for long-term investors. Perhaps, tobacco will one day be legislated out of existence, but I find it hard to see that happening for many decades, if at all.

The shares are currently changing hands for around 3,700 pence, which represents a bit over 16 times forecast earnings for 2013. The prospective dividend yield is 4%. Despite the share price being at an all-time high, the earnings multiple is in line with the market average, and the yield is superior.

BAT's long-term record of delivering for shareholders, and analyst forecasts of continuing double-digit earnings growth, suggest that, while the shares aren't in the bargain basement, they're not altogether unreasonably priced.

One savvy investor who has ridden the BAT success steed -- and is still aboard -- is City legend Neil Woodford, whose funds have outperformed the market for almost a quarter of a century. You may be interested to read about eight of the investing wizard's favorite blue chips in this free and exclusive Motley Fool report.

You can download the report right now with no further obligation -- simply click here.

link


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2452860, ~/Articles/ArticleHandler.aspx, 9/22/2014 10:27:37 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement