Our opinion on the current state of BTI

British American Tobacco (BTI) describes itself as a "leading consumer goods company" - which is a euphemistic way of saying that they produce and sell an enormous number of cigarettes and related products world-wide. It is also the second largest company on the JSE after Naspers. In recent decades, cigarette companies have become increasingly oppressed. Their ability to advertise their products and even package them has been severely curtailed in many countries. They are seen to be exploiting an addiction which is clearly anti-social and very bad for the individual's health, and which regularly involves them in lawsuits for damages. BAT owns well-known brands like Camel, Peter Stuyvesant, Rothmans, Benson & Hedges, Dunhill, Pall Mall, Kent and Lucky Strike. In an effort to get away from the negative perceptions of cigarettes, the company has diversified into "new category" products such as vaping and electronic cigarette markets which it claims offers it a long-term prospect for growth. Recently, especially in the United States, these products have also come under the spotlight for health reasons leading to a drop-off in sales. As an investment, the company offers some attractions. Roughly 20% of the world's population still smoke - making a truly massive market. Setting aside our distaste for the business which BAT conducts, the share looks like very good value at current levels. This is one of the shares that has performed well and perhaps even benefited from COVID-19. The CEO says that he aims to double non-combustible sales by the 2023/24 year. It is interesting that BAT considers South Africa's illegal cigarette market to be the largest in the world. In its results for the six months to 30th June 2023 the company reported revenue up 4,4% with non-combustibles making up 16,6% of revenue. Profit from operations was up 61,4% as the previous period was impacted by the effects of the war in Ukraine. On 6th December 2023, Business Day reported that BAT had impaired its US operations by GBP25bn (R595bn) leading to a drop of 10% in the BTI share price. The share now looks cheap to us on a P:E of 7,97 and a dividend yield (DY) of 7,94.