DCF Studio

    BATS.L · LSE · Consumer Defensive

    British American Tobacco p.l.c.

    Also onConsensus Drift

    Implied value per share

    GBp 7685.65

    Market price

    GBp 4196.00

    Implied upside

    +83.2%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    NoteRisk-free rate is an assumption: GBP assumption - no free live source available for this market.

    Value Per Share

    Perpetuity growth
    GBp 7685.65+83.2%
    Exit multiple
    GBp 4443.53+5.9%
    Market price
    GBp 4196.00

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (GBP). Outflows negative.

    0bn6bn11bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayGBP
    LineFY26FY27FY28FY29FY30CAGR
    RevenueGBP 25.0bnGBP 24.3bnGBP 23.7bnGBP 23.1bnGBP 22.5bn-2.5%
    EBITGBP 6.7bnGBP 6.5bnGBP 6.3bnGBP 6.2bnGBP 6.0bn-2.5%
    NOPATGBP 5.3bnGBP 5.1bnGBP 5.0bnGBP 4.9bnGBP 4.7bn-2.5%
    Add depreciation & amortisationGBP 7.1bnGBP 6.9bnGBP 6.7bnGBP 6.6bnGBP 6.4bn-2.5%
    Less capital expenditureGBP -603.7mGBP -588.5mGBP -573.6mGBP -559.1mGBP -545.0m-2.5%
    Less increase in working capitalGBP -647.5mGBP -631.1mGBP -615.2mGBP -599.6mGBP -584.5m-2.5%
    Free cashflow to firmGBP 11.1bnGBP 10.8bnGBP 10.5bnGBP 10.3bnGBP 10.0bn-2.5%
    Discount factor0.97110.91590.86380.81470.7684-
    Present valueGBP 10.8bnGBP 9.9bnGBP 9.1bnGBP 8.4bnGBP 7.7bn-8.1%
    Present Value Of The ForecastGBP 45.8bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate4.50%GBP assumption - no free live source available for this market (assumption)
    Equity risk premium5.50%Market assumption
    Beta0.406Reported 0.114, pulled toward 1.0 (Blume)
    Cost of equity6.74%Risk-free + beta x equity risk premium
    Cost of debt5.35%Interest expense / average total debt
    Market capitalisationGBP 90.3bn72.0% of capital
    Total debtGBP 35.1bn28.0% of capital, book value as a proxy
    Tax rate21.2%Effective, capped at statutory
    WACC6.03%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareGBP 76.86

    77% of EV

    Forecast FCFF, final year
    GBP 10.0bn
    Capex at depreciation, working capital in reinvestment
    GBP 9.3bn
    Less reinvestment at g/ROIC (25.7% of NOPAT)
    GBP -2.4bn
    Capitalised
    GBP 6.9bn
    ROIC (reported)
    9.7%
    Terminal value, undiscounted
    GBP 201.4bn
    Terminal value, discounted
    GBP 154.8bn
    Enterprise value
    GBP 200.6bn
    Less net debt
    GBP 31.6bn
    Equity value
    GBP 169.0bn

    Exit at 8.8x EBITDA

    Value per shareGBP 44.44

    65% of EV

    Terminal value, undiscounted
    GBP 108.6bn
    Terminal value, discounted
    GBP 83.5bn
    Enterprise value
    GBP 129.3bn
    Less net debt
    GBP 31.6bn
    Equity value
    GBP 97.7bn

    Spread between methods: 53%.

    Sensitivity

    Value per share (GBP) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    4.03%128.01149.28184.33253.22451.72
    5.03%89.7297.98109.42126.41154.40
    6.03%68.2972.0676.8683.1891.93
    7.03%54.5756.4058.6061.3164.74
    8.03%45.0245.8946.9048.0749.47

    Outlined: this model. Green text: above today's price of 41.96. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year-2.5%-11.3%-8.8pp
    EBIT margin26.7%6.3%-20.4pp
    Discount rate6.0%8.6%+2.6pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.