On Friday, UBS adjusted its outlook on British American Tobacco (LON:BATS:LN) (NYSE: NYSE:BTI), raising the price target to GBP30.00 from GBP28.00, while keeping a Neutral rating on the stock. The revision reflects the company's recent developments and challenges in the market.
The firm recognized British American Tobacco's efforts in innovation and competitiveness, especially in the United States, which is expected to contribute 54% of its FY24E EBIT. These advancements are a result of investments made over the past two to three years and have been highlighted during the company's recent Capital Markets Day.
Despite the positive developments, the analyst noted that the market environment for British American Tobacco remains dynamic. Challenges include the expansion of agile vape manufacturers from China into global markets and issues in the US market. The US International Trade Commission's ( ITC (NS:ITC)) decision to deny a temporary exclusion order to ban illicit vape imports adds to these challenges.
Further complicating the landscape for British American Tobacco is the Canadian litigation, which is anticipated to have a 6% negative impact on the company's earnings per share (EPS), according to UBS estimates. This litigation also affects the company's balance sheet flexibility.
The analyst suggested that these factors might reignite discussions about British American Tobacco's 25.5% stake in ITC, valued at £14.1bn or 21% of its market capitalization. There is a possibility that the company might reduce its stake in ITC to strengthen its balance sheet.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.