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BAT initiated at ‘buy’ as Goldman says firm well-placed to emerge as industry leader

The bank said they expected BAT to “emerge a relative leader” in next generation products such as vapes and e-cigarettes, which in turn would drive growth

British American Tobacco PLC - BAT initiated at ‘buy’ as Goldman says firm well-placed to emerge as industry leader
BAT's 'glo' electronic heated tobacco product

British American Tobacco PLC (LON:BATS) has been initiated with a ‘buy’ rating and 4,000p target price by analysts at Goldman Sachs, who said the firm was “well-placed” to emerge as a leader amid the evolving tobacco sector.

In a note on Wednesday, the bank said BAT was “amongst the highest-quality [consumer packaged goods] companies Europe]”, with a “strong product and geographic portfolio” that underpinned a resilient revenue growth outlook at an attractive margin trajectory.

READ: British American Tobacco sales hit by coronavirus lockdowns in emerging markets

Goldman said they expected steady growth in the company’s combustibles business should expand margins and also help fund investment in the group’s next generation products (NGP), which include electronic cigarettes and vaping devices.

The bank’s analysts said they expected BAT to “emerge a relative leader” in the NGP market, which in turn would drive growth.

“We believe a multi-category approach and strong brands leaves BAT well positioned to deliver profitable growth as the nicotine industry pivots away from combustible cigarettes”, Goldman said, forecasting that NGPs will generate £4.25bn in revenues for the company in 2025.

“We believe the direction of travel is clear, and we are confident in BAT’s competitive positioning”, they added.

The bank was less optimistic on BAT's LSE-listed rival Imperial Brands PLC (LON:IMB), initiating the stock at ‘neutral’  with a target of 1,700p.

Goldman said it was tempting to view the company as a buying opportunity, its NGP business was “misfiring, leaving it vulnerable to share losses from the overall nicotine pool” as the industry moved away from combustible products.

Shares in BAT were down 0.5% at 3,090p in late-morning trading, while Imperial Brands fell 1.1% to 1,521p.

Quick facts: British American Tobacco PLC

Price: 2532 GBX

Market: LSE
Market Cap: £58.07 billion

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