UBS upgraded British American Tobacco on Monday to ‘buy’ from ‘neutral’, hiked the price target to 3,900p from 3,000p and made the stock its ‘top pick’.
Source: Sharecast
The bank said it expects BAT's Velo nicotine pouches to accelerate sales growth in New Categories to 16% in FY26, enabling the group to deliver its 2026 outlook.
"Also, there could be flexibility in BAT's 25.5% stake in ITC, for larger buybacks/ debt reduction," UBS said, which could lead to a re-rating.
As a result, UBS said, BAT's estimated FY26 'stub' price-to-earnings of 6.6x is low.
"Helped by USD strength, we raise our FY25/26 EPS estimates by +3%/+5% - similarly above consensus including Canada - and raise our target price to £39.0 (from £30.0), which is based on a FY26E P/E of 9.5x (-10% discount to the tobacco sector versus -7y average of circa -20%), rolled-forward," it said.
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