British American Tobacco PLC (LSE:BATS) may disappoint with top-line and earnings per share (EPS) growth when it reports final results on 9 February, but it will return to form in 2023, according to US bank Jeffries.
The cigarette company reduced guidance from 3-5% and high-single-digit earnings following its withdrawal from Russia.
However, Jeffries thinks growth of 2.6% for sales and EPS increasing by 4.7% is more likely for 2022, below consensus forecasts currently at 3.2% sales and 5.8% for EPS.
The analysts said “key watch-outs” in the results to gauge sentiment about the new year will be the US cigarette outlook and buybacks.
“We see a recovery in US industry cig vols, yet BAT may be reluctant to project as such, and on the buyback, we see £1bn (yet below the £2bn of FY22).”
For the shares to re-rate any time soon the “absolutely critical” thing will be whether US pre-market tobacco product application (PMTA) vape approval is received. “We expect that this year.”
Chief executive Jack Bowles in December said “new category business continues to drive strong volume, revenue and market share growth”, with so-called 'reduced risk' products such as BAT’s tobacco heating Glo product and electronic cigarette Vuse able to make significant category share gains.
BAT’s share price has remained consistent over the last twelve months (-0.31%) outperforming rivals Phillip Morris and Altria, although falling short of the 18.7% gain seen by Imperial Brands.
BATS is currently valued at £31.01 having fallen 7.2% since 2023 began, Jeffries predict a £47 target price and reiterate a “buy” rating for the stock.