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British American Tobacco (LSE:BATS) After FDA Velo Nod And JPMorgan Backing Looks Undervalued

Simply Wall St · 1d ago

British American Tobacco (LSE:BATS) is back in focus after JPMorgan resumed coverage with an Overweight rating, shortly after the FDA cleared 24 Velo nicotine pouch products for US sale.

Recent momentum has been building, with British American Tobacco’s share price delivering an 11.15% year to date return and a 9.30% 1 month gain. The 1 year total shareholder return of 21.03% sits alongside a very large 5 year total shareholder return near 17x.

Scan beyond British American Tobacco and compare it to a curated group of income-focused stocks in our 4 dividend fortresses.

After a sharp rebound and fresh optimism around US nicotine pouches, the real puzzle for British American Tobacco holders now is simple. Is the meaningful upside still ahead, or has most of it already been captured in the recent move?

Most Popular Narrative: 9.7% Undervalued

Compared with the last close at £46.56, the analyst consensus Narrative on Simply Wall St pins British American Tobacco’s fair value at £51.54. This points to a modest discount and anchors the current rebound in a cash flow heavy story.

The rapid growth and further penetration of Modern Oral and Heated Products, particularly as smokeless already represents 19.8% of British American Tobacco’s revenue and smokeless consumers reach 35m, keeps alive the potential for reduced risk products to take a larger share of group revenue and support future top line growth.

Strong uptake and premiumization of reduced risk products, with Modern Oral revenue expected to benefit from an industry pool that is projected to almost triple to about £11b by 2030 and Modern Oral gross profit per unit already cited as roughly 4x combustibles, reinforces the scope for structurally higher contribution margins and earnings mix over time.

See why 203 investors see British American Tobacco as 10% undervalued.

Result: Fair Value of £51.54 (UNDERVALUED)

Still, if illicit trade keeps eroding taxed cigarette volumes in markets like South Africa, or if regulation tightens sharply on vapour and oral products, the British American Tobacco narrative could shift quickly.

Find out about the key risks to this British American Tobacco narrative.

Next Steps

Mixed feelings about British American Tobacco after this kind of run are natural. Move quickly and pressure test the story against the 3 key rewards and 2 important warning signs.

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