Credit Suisse: British American Tobacco Is, Again, A Buy

In a report published Tuesday, Credit Suisse analyst Charlie Mills reinitiated coverage of British American Tobacco PLC (ADR) BTI with an Outperform rating and a price target of £38. "BAT has arguably the most consistent track record in consumer staples, even for a sector renowned for such attributes. It has consistently delivered 10% constant FX EPS growth, with price and margin the key levers," Mills said. The analyst believes, however, that while the company chose to return cash via share repurchases historically, given that recent M&A had raised its net debt/EBITDA ratio, the short-term focus is likely to be on debt reduction. The M&A has also impacted British American Tobacco's valuation and profit mix, with better exposure to the US. Both the Reynolds and Souza Cruz investments are expected to be mildly accretive to the company in Year One itself. "Going forward, we would expect somewhat better volumes… Margins too should continue to trend upwards… There are further opportunities in particular through the SAP implementation," the Credit Suisse report stated. The analyst expects the company to report steady constant currency EPS growth in the high single digits for the next few years.