• British American Tobacco is offering good value, PSG says.
  • The investment manager says BAT justifies a recommended portfolio exposure of up to 8.14%.
  • PSG says BAT has made significant progress in growing its vaping business.

The investment manager PSG punted British American Tobacco (BAT) in a research report on Tuesday morning, with a recommended portfolio exposure of up to 8.14%.

The company, which is trading at a forward price earnings ratio of 14.8 times, offers good value, PSG equity analyst Danie de Lange says.

BAT recently reported adjust revenue growth of 2.9% in the year to end-December, while profit from operations rose by 39%.

BAT is the world’s biggest tobacco company after it bought its US rival Reynolds American for $49.4 billion last year. Reynolds makes Camel and Newport cigarettes. BAT also makes Peter Stuyvesant and Dunhill.

De Lange is positive about the “significant progress” BAT has made in growing its vaping and tobacco heating products. Recently, BAT reported that demand for its  “glo” tobacco-heating device overwhelmed supply when it launched in Japan.

British American Tobacco's glo device.

BAT has invested more than $1 billion in developing these new-generation products since launching its first vaping product, Vype, in the UK five years ago.

BAT offers a product (cigarettes) that is traditionally resilient in times of uncertainty, says De Lange. It has a strong brand portfolio, which is balanced across different geographies, reducing country-specific risk.

However, the company does face a number of other risks, including the unlawful trade in cigarettes, penalties and foreign currency volatility, he adds. Still, its strong balance sheet and new generation products should support future growth, De Lange says.

Goldman Sachs also kept its "buy" rating for British American Tobacco in a note on Monday, with a target price of 5,400p (R885). The share is currently trading at 4,222p on the London Stock Exchange.

BAT has lost 14% of its value over the past year, and was trading at R692 on Tuesday morning.

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