British American Tobacco (BTI) Stock - 12% Free Cash Flow Yield - Estimated 22% IRR
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- เผยแพร่เมื่อ 20 มิ.ย. 2023
- A Deep Dive into the British American Tobacco (BTI) Revenue, Earnings and Cash Flow of one the world's largest Tobacco companies. The long term revenue growth, low debt and cash flow makes this stock a compelling long term cash generations opportunity. Will the growth be there? Let's get into it.
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All opinions expressed by Cameron Stewart at Rational Investing with Cameron Stewart, CFA or on Cashflowinvestingpro.com are solely Mr. Stewart’s opinions. You should not treat any opinion expressed by Mr. Stewart as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. Mr. Stewart’s statements and opinions are subject to change without notice. Past performance is not indicative of future results. Mr. Stewart does not guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment discussed on this show. Strategies or investments discussed may fluctuate in price or value. Investors may get back less than invested. Investments or strategies mentioned on this show may not be suitable for you. This material does not take into account your particular investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. You must make an independent decision regarding investments or strategies mentioned on this show. Before acting on information on this show, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment adviser.
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Bought shares over the last weeks. It is undervalued and a great way to boost the dividend portfolio. BTI announced last conference they will not buy back shares but use the free cash flow to reduce debt in this high interest rate environment which is good in my opinion. Big stake in Indian Tabacco company…. Amazing opportunity
Love your channel, subscribed immediately. Could watch you for hours. We need more videos!!
Revenue appears to have grown with 3% CAGR over the last 10 years but bear in mind that BTI did acquire shares of Reynolds in 2017 which artificially boosted revenue growth (and also resulted in a big spike in debt). Without that acquisition, revenue would have almost certainly fallen - before the acquisition, revenue was dropping every year (2013 - 2016).
I think the competitive landscape changed with Phillip Morris' recent decision to re-enter the US RRP market. The US market is so important for BTI that I expect this move from Phillip Morris will adversely affect BTI's longer term prospects, especially given Phillip Morris' record of very good execution. BTI will continue to pay down debt and eventually restart buy backs. The stock price will respond positively when this happens. In the meantime, we can get paid a handsome dividend. Longer term, I cannot see much growth for BTI.
Thaks for the great content, appreciate the effort! I've came accros this one a couple of weeks ago reading the article on employee satisfaction which was prety high for BTI. After going thru annual reports and realizing the amount of cash its generating compared to quite low interest cost against EBIT, this was no brainer for me. I do not see x3,5 EBITDA kredit as problem in this case. Thus its nice to see confirmation on stock pick from the person I value. Greetings from Europe.
Been following for a while now. Just want to say I love your channel. Hard to find anyone else out there doing such thorough analysis. Your perspectives are always interesting and I learn a lot every time I watch. Keep it up man.
Thanks for saying that and watching. I’m glad I can help
BTI owns ca. 30% of ITC India Tobacco Limited, the stake is worth 20 billion, you get it in addition to your IRR calculation "for free"
I was thinking the same thing, love ITC stock even more than BTI
ITC ownership is included in BAT's income statement and cash flows because the consolidation method is used. Therefore the numbers Cameron shows are including the ITC part already.
Thank you, Cameron, for making this video! I have been hoping you would review BTI. Love the channel. Keep up the great work. Any chance of doing an analysis of steel giant, Nucor (NUE)? Im confident you’ll find it meets the Trifecta standard! All the best.
You know something is cheap when I am looking at it. Thanks for the video and analysis.
Lovely work and a great analysis. Thank you very much for this video.
Thank you for all your effort you put into these videos very informative and I seriously appreciate the work you put in thank you again
Long Time Owner of BTI here. The 8.5% dividend is mouth-watering. As a dividend investor, I can't wait for the next paycheck for doing nothing 🙂.
Dividends are great but the stock value has been stagnant
@@Curtis69213it’s 28$ now
I do like the sort of analysis you do. And also the use of the term "Jack" -- thought I was the last person using it. I do think that about half of the viewers are dying to hear you compare BTI to the mighty Altria -- MO is incredibly hyped on TH-cam. Perhaps a follow up video on MO?
I like your professuonal introduction. It helps me a lot.
Respect You, great video, great analysis!
Smoking is bad for you...but so is passing up such a great dividend at such a low PE! I'm in @ $30.
This video will be remembered for generations!
🐐
I always love your videos , you are a great teacher.
Thanks for thee great effort ❤
Amazing. Would love an update on this company here soon
Cameron, would love to see you do a shot update on BTI and get your thoughts on the recent $25 billion write down. Thanks!
Thank you for the video. The education of understanding about metrics and their meaning/relation to other metrics is highly valuable to my understanding more on this investment journey.
Thank you for your great video. 👏👍
Thanks Cameron, very good video. Could you please analyse SABRE (SABR)
Sir, Love your work, Please analyze the healthcare stock CIGNA
Where do you get your numbers? I am seeing different free cash flow, etc on yahoo finance. Also one more question, how can you buy a stock at $35 and have a 2032 price target of $38 but still receive a 15% IRR? Is that because you're saying the market doesn't actually respect the value of the stock?
My boy Cameron came in clutch with this video. Really appreciate you doing this video. You have no idea how much you help people out. Seriously your doing gods work and really helping people out. I manage my moms money in her old age. Bro I've learned so much from your videos in terms of how long to hold things how to read the financials. You're a real blessing. I would recommend you to anyone.
Debt went up in 2017, I think, for the Reynolds American acquisition and they've been wanting to prioritize their debt over share buybacks.
I sold all my Big Tech this week and bought BTI. We'll see how it goes.
Great video! Any chance of doing MPW??
Great analysis! Can you do LMT, NOC, Airbus or some other defence stock. Thank You very much!
Thank you for this. Bti is one of my biggest holding in my portfolio
What is the definition of “excess cash”? 😊
I thought it was similar to the “cash and cash equivalent” amount in the balance sheet.. but it is not increasing despite a big cash generation, little capex, no debt repayment, no shares buyback and a dividend which is well below the 100% mark.. 😅
Excellent analysis. I'm curious how you would rate PM. PM has had MUCH more capital appreciation than BTI over the past 5 years.
Leslie's inc might be interesting right now. It's a similar play to pool Corp but its half retail half wholesale
Omg so excited for this one. I have been a shareholder (bagholder atm hahah) for more than a year and can't get my head around the valuation
I sold out when the stock price dropped. Dividends are not worth much if the stock price retreats.Also sold out of Altria for the same reason.
@@Curtis69213what do u think about it now
Great as always
bought today @28.85 hopefully it pays off. I am working in convenience store and ZONIC and VUSE are doing well. ZONIC is actually hard to order. I think it is on shortage and can't keep up the production. Many customers ask too.
19:32 this aged well lol. Good analysis I like BTI
Your conservative approach about forecasting the future is extremely good.
Thank you for analyzing the stock. Is there anyway that you can look at ET and give me your opinion? Thank you.
Thanks for the excellent video
BTI was my largest positions once, sold 2/3 at $40. Currently MPW is my largest position, but started adding BTI again at $32. So many great stock are cheap now: UGI, MO, GEO, GMRE, WPC - hard choice.
Thanks for the names sir
Are you still in MPW? Hope not.. put it back in BTI
The market for modern oral is set to grow 10x by 2030. Also, the modern oral is a door to deliver any other chemical such as drugs. I know well this market because I used to work on it
Looks like an interesting company. Could you also take a look at PBR?
Thanks
Really enjoyed this analysis. Where does exchange rate losses fit into this estimate? USD has been stronger against the £ the last couple of years.
Continued strength in the USD will weaken the IRR
Hi Cameron!
Could you do an analysis on Anta sports?
This is good stuff, lots of cool info😊 I also own Imperial Brands.
Loved it - forgot to mention its ownership of ITC one of indias largest public companies
Own it, love it
It rests on the revenue assumption growth and management's capacity to reinvest the FCF wisely. It is cheap and could do very well.
Thanks for breaking down the numbers. BTI has been on my "list" for quite some time now ... but I never really knew what to make of it.
Now I just started a position five minutes ago. Fits exactly my profile as a long term value investor. Thanks again, Cameron. 😃
Weak minded.
Borrowing conviction from TH-cam. What a wuss and a peon
Superb video!!
Thank you! Cheers!
Thank you
Equity markets don’t price tobacco companies at high multiples… ever. One of the main reasons that set in motion RJR’s LBO in the 80s… they were doing everythign they could to raise the stock price that couldnt break 9x pe
Cameron with the Uber hot takes! :)
Cameron, can you do persimmon homes. It is the UK second largest house builder. It weathered the last recession really well. They have recently cut the dividend despite high cash. Would be interesting to hear your take on the industry and the stock.
I don’t know the RE market well. Sorry that’s out of my wheelhouse
Buy the fear, lot of negativity out there in the U.K. news and markets. It’s been beaten up compared to other housebuilders e.g Taylor Wimpey. Dividend will come back in coming years - good hold IMO
Nobody is vaping any more, vaping can't replace declining cigarette sales.
But stuff like ZYN can!!
I still own BAT and IMBI tho 👍 Lucky Strike🎯
guys, who's going to join me by starting to smoke BAT cigarettes? gotta support the brand you know? pleasing bowling-alley aroma, smooth tar flavor, and that sweet sweet nicotine that keeps you wanting more!
One important thing it’s their participation in the indian tobacco company!
BAT has an excellent website that shows all of their debt and I think that what they show there has to be taken into account when analyzing the future cash flows. They have a giant wall of debt coming due in the next 5 years. They will be able to pay off some of it, but have to refinance most of it. The existing loans have very favorable interest rates. When they refinance, they will not get nearly as good interest rates.
Very good point. That is why BAT stopped buying back stock and concerned on paying off their debt. The dividend is slightly increased.
Yeah the balance sheet concerns me. Most of their assets are intangible. Don’t love that
Little secret my friend BAT owns 29 percentage of ITC valued at 16 billion
ITC value doubling every two years
IRR is not the same thing as Shareholder return. A $38 share price in 10 years from now, plus the 8.5% dividend growing at 1% will not give shareholders a 22% annualized rate of return. Internal cash flow means very little for the shareholders
I was trying to understand this as well. I think the idea is that during this period you're receiving ~$5 annually so at the end of it you have the $5/yr+ the share price. The hope is they do something with your $5 annually such as buy back shares or reinvest.
I think the IRR calculations needs to be taken with a "grain of salt" - the 22% IRR is mainly driven by the FCFE / Share which will vary each year depending on the Debt inflows or outflows.
Starting with FCFE of 5.27 on Y1 seems to be not conservative in my view
True
@@CstewartCFA - what do you think of the DCF method using FCFF?
I think its commonly used method in the world of Investing...
Thanks for the channel, its very informative
Can you do bsm
Awesome analysis
Thanks !
the debt to ebitda has deteriorated because its invested into non combustibles which helps on the longer run but may require some time for consumers to notice.
when something is too good to be true maybe it's not. maybe some factors in this equation aren't considered, otherwise it wouldn't be so underappreciated. what if the company doesn't grow at all for the next 10 years or has a negative growth? would it seem so cheap either? Thanks Cameron for your analysis.
There are companies that will make 500 in the future. Market is so excited about those that they are willing to pay 5000 for those. Then there are companies that don't have a great future. They will make 50 in the future. So it makes no sense to pay 100 for those. But the market overreacts and starts pricing the company that will make 50 at 10 bucks. That overreaction is common and most notably seen in tobacco, oil, and other out-of-favor industries. So you buy the 50 dollars of future potential for 10, while the market proudly buys 500 of future revenue for 5000.
What happens to your numbers if interest expense increases?
Their debt is mostly fixed, will take time for debt to mature and reissue higher
Hey Cameron, I enjoy your videos, but why are you comparing a 10% CAGR in SPY to a 22% estimated IRR for BTI? Also, why would you assume that an increase in vaping revenue would be just as profitable as high margin cigarette revenue, when they’re not even profitable on vaping right now?
If we can “make” 10% in the SPY with diversification then that’s the hurdle rate for us to consider when looking into other opportunities.
Your point on margin is a good one.
@@CstewartCFA I understand comparing to an index hurdle rate, but my point is that a compound annual return rate of 10% is different than your IRR. To get a return of 2.9x over 10 years is only about an 11.2% CAGR. What am I missing?
I have read all the comments waiting for this point. The margins of E-cigarettes are much lower.
Why are you analyzing on EBITDA basis and ignore EBIT? Investments will have to be refinanced at some point...
ASSUME I BUY AT 32 AND SELL IT IN 2032 FOR 38, WITH 8% YIELD, HOW DO I GET A 22% ACTUAL RETURN AS A SHAREHOLDER?
I didn’t understand that as well!
Pls look at imperial brands, even cheaper than BATS. 4th biggest cig company
Also doing buybacks
Euros, do you mean pounds? This is a UK company.
it's not euro, it's GBP
True and that's a good thing. Even more dollars
Silly error to say it’s Euros. It’s GBP and the clue is in the name of the share. Good analysis apart from that though 💛
@@peterhome6601 It was Euro until Brexit and the name hasn't changed. Who can keep up? 💁
@@Pizza-gb1ch sorry but that’s not correct. BATS as with all stocks on the London Stock Exchange have always been quoted in GBP. Actually to be even more accurate the vast majority quote in GBX ( pence)
peterhome6601Thanx. See we never know what's up with those/(u) blokes accross the pond.
Pounds not euros
Things always get cheaper than you'd think they would, heh.
Bti is easy buy in the low 30s sell covered calls at 50 and every now and then it will be called away from you
I started by selling 30 put. If I get assigned then I start selling calls. (wheel strategy). I dont mind to get my money by selling puts vs dividend. Different ways to skin a cat.
@@motrader273 exactly
Its Pounds not EUR
I looked at it but their main cigarette business is declining big red flag for me. This their main cash cow, theyll need to make up for this with high growth in this new segment which i think is unsustainable. Plus all the regulatory overhang its a no for me.
It's a great company at a cheap price but I would prefer them buying back shares and reducing debt instead of increasing my dividends. DRIP has tax obligations so buybacks just seem more reasonable to me.
They are not buying back shares this year but reducing debt. Thats what they stated last conference and maybe the reason why there is pressure on the stock price
@@elronpfandbon3752 That's fine to me. Reducing debt is reducing interest and thereby improving the future cash flow attributable to the shareholder. Best way to return excess cash atm in my opinion.
The divident isn t taxed at source so it s a verry good option too, i think they are taking the better path with debt reduction and maintain dvidients
Thanks Cameron! Is Disney next???
Not yet. Needs to be lower
@@CstewartCFA How much lower can it go?? It’s already pretty low
They need to pay down debt
And buy back stocks while on sale.
@@druvaciam5407 debt is priority. They have been pretty reckless. Hence why they have such low roic. These companies need activist investors.
@@matthewhammond859they are. They will not buy back shares but reduce debt is what they said last conference
It’s not euros it’s pounds
Yep, for some reason I was stuck with euros on my brain….
Does anyone here own BTI? If so, can you confirm how their dividend is taxed here in the US? Do you have a foreign tax withheld?
British stocks have no dividends tax, but I'm not from US.
I have BTI and does not have tax on dividends in the US
@@rickvalmer9306 thanks!
If management wanted to maximize returns, they would cut the dividend to zero and then pay down the debt for one year with all of the free cash flow and then buyback shares aggressively every year. If people want an 8% distribution every year, they can sell 8% of their position every year.
True. Excellent comment
I rather invest in Bud 🍺
Hahaha
All it takes is a new law to ban vapes or ban nicotine vapes and their business will end
and then the same person will ban alcohol and casinos and violent crimes. and we will live sin free like a one big happy family forever 😅
You standing in front of the chart really bothers me. Also, you missed so many things (esp. Reynolds) that I can't take this analysis for anything serious - not questioning why CF goes up 50% within a year is just... do you even check a company's website before making a video? Also, the "vape" bubble... you just came up with that, that's ridiculous.
Very cheap company and customers are literally addicted to their products
Rational investing but not rational counting. If stock price will grow from 32 to 38 it is 22% in 10 years not 22% every year. And he things it will beat S&P ? Poor S&P then.
+ dividend
Your forgot dividends and stock buybacks.
the money it produces (FCF) will not disappear even if the stock price stays the same. you should think about it as a company that is making money. imagine a girl says you are a poor loser. then you make 10mil usd in next 10 years. she again says you are poor loser. well does it matter what she thinks if you have 10 mil in your pocket now? that’s same with the stock price. in both cases - either you or the management of the company can’t make so much money and then literally burn it as Cameron said :)
Good job! Can you look at TU? Telus. It has also a stake int TIXT
Thanks