British American Tobacco likely to see guidance upgrade say analysts

British American Tobacco PLC (LON:BATS) (BAT) could raise its full-year 2022 (FY22) guidance, according to analysts at Barclays (LON:BARC), as its continued business in Russia is expected to bolster the company’s underlying profits.

On 11 March, BAT said it has decided to exit Russia, leading the company to cut FY22 revenue guidance from 3-5% to 2-4% and reduce its earnings per share (EPS) forecast, excluding forex, to medium-single-digit (MSD) from high-single-digit (HSD) which the analysts attributed to two factors: Russia and the likely impact of rising gas prices on US cigarette volumes.

The Barclays’ analysts noted that Russia accounted for around 2.5% of BAT’s FY21 revenues and 1.2% or £135mln of EBIT, and 5-6 cents of EPS.

The analysts said: “We think BAT may have thought this might go to 0 in 2022 (on March 11). However, BAT hasn’t exited Russia yet. Russian profits have jumped owing to lack of investments behind glo (e-cigarettes) and GBP has depreciated vs. RUB.”

They added: “All this implies Russia could contribute £450-500mln EBIT/15-16 cents EPS in 2022 vs. 0 we think was expected on March 11, and this could lead to FY22 guidance upgrade, in our view.”

“With US e-cigs now firmly in the black and share repurchases stepping up, we believe BAT will accelerate to HSD EPS (ex FX) growth from FY23,” they concluded.

The analysts noted that BAT is scheduled to deliver a FY22 pre-close update on 8 December 2022.

The Barclays analysts reiterated an ‘overweight’ rating and 4,500p price target on BAT, with the shares currently changing hands at 3,385p.