As I write, the British American Tobacco (LSE: BATS) share price is up 2.5% in morning trading following the release of the firm’s half-year results.
The stock’s been gaining good ground in 2024, rising 12.9%. That said, it’s still down 12.8% over the last five years.
I already own some shares. But after its latest update, is it time to buy more? And is British American Tobacco a stock that investors should consider buying today?
Declining revenues
On the surface, its results may not look great. After all, revenue for the period fell 8.2%, or 3.7% at a constant exchange rate, due to the sale of its businesses in Russia and Belarus in September 2023 and its implications.
Furthermore, operating profit fell by 28.3% due to higher amortisation charges for its US brands.
‘Building a Smokeless World’
But even so, there were still plenty of positives to take away. For example, British American Tobacco continues to make good strides with its aim of ‘Building a Smokeless World’.
It added 1.4m consumers to its Smokeless brands, up to 26.4m. It now accounts for 17.9% of group revenue, a 1.4% increase from the same period last year.
Nevertheless, it still faced challenges, with revenue from New Categories declining 0.4% to £1.7bn.
Share buybacks
Even so, I suspect a lot of investors, myself included, own the stock for the meaty income on offer. That’s why many would have been pleased to see the firm announce a fresh share buyback scheme.
Reinforcing that it “understands the importance of cash returns to shareholders” and that it remains “committed to our progressive dividend based upon 65% of long-term sustainable earnings”, the business announced it would buy back £700m worth of shares in 2024 and £900m in 2025.
That has been funded by the partial sale of its ownership in Indian conglomerate ITC. Its stake now sits at 25.5%, down from 29%.
What’s more, the stock has the fourth-highest dividend yield on the FTSE 100, sporting an 8.9% payout. British American Tobacco expects to generate around £40bn of free cash flow over the next five years. That will support the business in continuing to reward investors.
Valuation
Alongside that, I see good value in its share price today. With its earnings per share rising 13.9% to 201.1p, the stock now trades on a price-to-earnings ratio of 13. That’s below the Footsie long-term average of around 15.
Time to buy?
British American Tobacco’s latest update’s encouraging. And if I had the cash, I’d happily buy more shares today.
Declining revenues are a stark reminder of the risks the group faces moving forward. Smoking’s a habit that continues to become increasingly unpopular and the business will continue to come under pressure from greater regulation of the industry.
Its results also criticised the US authorities for a “continued lack of enforcement against illicit single-use vapour products” and the effect that has had on its earnings.
But there’s an attractive combination on offer of a cheap valuation and high yield. And with British American Tobacco on track to achieve its full-year guidance, I’m optimistic its share price can keep up that momentum this year.
The post The British American Tobacco share price jumps as it announces £1.6bn worth of share buybacks appeared first on The Motley Fool UK.
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Charlie Keough has positions in British American Tobacco P.l.c. The Motley Fool UK has recommended British American Tobacco P.l.c. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
