This price is BATs

Smoking kills. There can scarcely be a literate adult on the planet who has not heard this oft-repeated refrain. True, you need to persevere in quantity over quite a long time to be reasonably sure that smoking will kill you, but the evidence is indisputable. However, a more interesting question is whether holding shares in British American Tobacco will have a similar baleful outcome, and here the picture is rather different.

BAT is probably the ultimate pariah stock in the UK market. Its sheer size, £58bn market value, makes it hard to ignore, but the City’s finest, both analysts and investors, are giving it their best shot. The oil companies are priced as if they have no long-term future, but BAT is priced as if it has little chance even of a short-term one.

Just to rub it in, like Shell and BP, BAT is also priced at a big discount to its US competitors. Like them, most of the profit is earned outside the UK, so managements could be forgiven for at least considering upping sticks, so to speak, and relisting in New York. The brokers at Jefferies are convinced, not least because “there is less of an ESG overhang among US investors around tobacco/nicotine” than amongst the sensitive souls in London.

Here, BAT seems to be trying to pretend it’s not really a smoker at all, but is building “A Better Tomorrow”. It is advertising and lobbying the government for rules on nicotine pouches, whatever they are, “likely to be associated with a reduction in overall risks of adverse health effects.” Well, best of luck with that.

For investors, the BAT stats are truly extraordinary. At today’s £25.70, the cheapest they have been for 11 years, the yield is a smidgin short of 9 per cent, this for a company where Morgan Stanley’s analysts expect a rising payout over the next three years. There is a lot of debt (although the bond prices do not signal any concern from debt investors) and the constant grind of restrictive legislation, but still.

So here’s a suggestion from a shareholder for British American Tobacco’s new CEO, Tadeu Marroco. Since dividends are clearly wasted on the ungrateful shareholders, use the money to buy in even more of the stock. At today’s price, it would take only eight years to buy in the whole share capital, leaving me as the sole owner of the entire business.

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