We've been asking ourselves recently if the market has placed a fair valuation on British American Tobacco Industries p.l.c.. Let's dive into some of the fundamental values of this Large-Cap Health Care company to determine if there might be an opportunity here for value-minded investors.
a Lower P/B Ratio Than Its Sector Average but Its Shares Are Expensive:
British American Tobacco p.l.c. provides tobacco and nicotine products to consumers in the Americas, Europe, the Asia-Pacific, the Middle East, Africa, and the United States. The company belongs to the Health Care sector, which has an average price to earnings (P/E) ratio of 22.94 and an average price to book (P/B) ratio of 3.19. In contrast, British American Tobacco Industries p.l.c. has a trailing 12 month P/E ratio of 27.4 and a P/B ratio of 2.49.
British American Tobacco Industries p.l.c. has moved 45.6% over the last year compared to 17.9% for the S&P 500 — a difference of 27.7%. British American Tobacco Industries p.l.c. has a 52 week high of $59.29 and a 52 week low of $34.17.
Generally Positive Cash Flows but a Highly Leveraged Balance Sheet:
| 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $25,877 | $25,776 | $25,684 | $27,655 | $27,283 | $25,867 |
| Operating Margins | 35% | 39% | 40% | 38% | -57% | 11% |
| Net Margins | 23% | 25% | 27% | 25% | -52% | 12% |
| Net Income (M) | $5,849 | $6,564 | $6,974 | $6,846 | -$14,189 | $3,181 |
| Net Interest Expense (M) | $1,676 | $1,605 | $1,436 | $1,602 | $1,786 | $1,704 |
| Depreciation & Amort. (M) | $1,512 | $1,450 | $1,076 | $1,305 | $28,614 | $3,101 |
| Diluted Shares (M) | 2,456,520,738 | 2,457 | 2,457 | 2,457 | 2,457 | 2,346 |
| Earnings Per Share | $2.49 | $2.79 | $2.96 | $2.92 | -$6.47 | $1.36 |
| EPS Growth | n/a | 12.05% | 6.09% | -1.35% | -321.58% | 121.02% |
| Free Cash Flow (M) | $8,996 | $9,786 | $9,717 | $10,394 | $10,714 | $10,125 |
| Total Debt (M) | $37,804 | $39,927 | $35,666 | $38,726 | $35,406 | $32,638 |
| Net Debt / EBITDA | 3.35 | 3.22 | 2.91 | 2.98 | 2.39 | 4.68 |
| Current Ratio | 0.71 | 0.88 | 0.85 | 0.86 | 0.91 | 0.76 |
British American Tobacco Industries p.l.c.'s financial statements include several red flags such as weak operating margins with a negative growth trend, declining EPS growth, and not enough current assets to cover current liabilities because its current ratio is 0.76. Additionally, the firm has a highly leveraged balance sheet. On the other hand, the company has generally positive cash flows working in its favor.
