Research Update: British American Tobacco Outlook Revised To Stable On Debt Deleveraging Efforts; Affirmed At 'BBB+/A-2'

British American Tobacco's (BAT's) credit metrics improved in 2023, with S&P Global Ratings-adjusted debt to EBITDA decreasing to 2.9x (from 3.5x in 2022), in line with our base case. This was notably thanks to a solid operating performance in key markets and in new categories supporting strong free operating cash flow (FOCF) generation (£7.3 billion in 2023, stable versus last year). For 2024-2025 we forecast BAT to generate slightly lower adjusted EBITDA and FOCF versus 2023 reflecting higher investments in new categories and rising financing costs. However, we foresee the group maintaining stable credit metrics such that adjusted debt to EBITDA remains around 3.0x. This is thanks to its improved financial headroom and, in our view, BAT will pursue a

...- British American Tobacco's (BAT's) credit metrics improved in 2023, with S&P Global Ratings-adjusted debt to EBITDA decreasing to 2.9x (from 3.5x in 2022), in line with our base case. This was notably thanks to a solid operating performance in key markets and in new categories supporting strong free operating cash flow (FOCF) generation (ú7.3 billion in 2023, stable versus last year). - For 2024-2025 we forecast BAT to generate slightly lower adjusted EBITDA and FOCF versus 2023 reflecting higher investments in new categories and rising financing costs. However, we foresee the group maintaining stable credit metrics such that adjusted debt to EBITDA remains around 3.0x. This is thanks to its improved financial headroom and, in our view, BAT will pursue a consistent financial policy aimed at adequately balancing debt leverage tolerance with rising shareholder remuneration. - We therefore revised our outlook on our long-term ratings on BAT to stable from negative. We affirmed our '###+'/A-2'...

Research Update