Intrinsic value of British American Tobacco ADR - BTI

Previous Close

$60.80

  Intrinsic Value

$53.25

stock screener

  Rating & Target

hold

-12%

  Value-price divergence*

-22%

Previous close

$60.80

 
Intrinsic value

$53.25

 
Up/down potential

-12%

 
Rating

hold

 
Value-price divergence*

-22%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of BTI stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 111.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  12.57
  12.60
  11.84
  11.16
  10.54
  9.99
  9.49
  9.04
  8.64
  8.27
  7.94
  7.65
  7.38
  7.15
  6.93
  6.74
  6.56
  6.41
  6.27
  6.14
  6.03
  5.92
  5.83
  5.75
  5.67
  5.61
  5.55
  5.49
  5.44
  5.40
  5.36
Revenue, $m
  17,933
  20,193
  22,583
  25,103
  27,749
  30,520
  33,415
  36,436
  39,582
  42,856
  46,261
  49,800
  53,477
  57,299
  61,271
  65,400
  69,693
  74,159
  78,807
  83,647
  88,688
  93,941
  99,420
  105,135
  111,100
  117,328
  123,835
  130,635
  137,744
  145,179
  152,957
Variable operating expenses, $m
 
  12,997
  14,377
  15,831
  17,359
  18,958
  20,630
  22,373
  24,190
  26,080
  28,045
  28,748
  30,871
  33,077
  35,370
  37,753
  40,232
  42,810
  45,493
  48,287
  51,197
  54,230
  57,392
  60,691
  64,135
  67,730
  71,486
  75,412
  79,516
  83,808
  88,298
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  12,274
  12,997
  14,377
  15,831
  17,359
  18,958
  20,630
  22,373
  24,190
  26,080
  28,045
  28,748
  30,871
  33,077
  35,370
  37,753
  40,232
  42,810
  45,493
  48,287
  51,197
  54,230
  57,392
  60,691
  64,135
  67,730
  71,486
  75,412
  79,516
  83,808
  88,298
Operating income, $m
  5,659
  7,196
  8,207
  9,272
  10,390
  11,561
  12,786
  14,062
  15,392
  16,776
  18,216
  21,052
  22,606
  24,222
  25,901
  27,646
  29,461
  31,349
  33,314
  35,360
  37,491
  39,712
  42,028
  44,443
  46,965
  49,598
  52,348
  55,223
  58,228
  61,371
  64,659
EBITDA, $m
  6,397
  8,788
  9,829
  10,925
  12,077
  13,283
  14,543
  15,858
  17,227
  18,652
  20,134
  21,674
  23,274
  24,938
  26,666
  28,463
  30,332
  32,275
  34,298
  36,404
  38,598
  40,885
  43,269
  45,757
  48,353
  51,063
  53,895
  56,855
  59,948
  63,184
  66,570
Interest expense (income), $m
  779
  735
  892
  1,058
  1,234
  1,418
  1,611
  1,812
  2,023
  2,242
  2,470
  2,707
  2,954
  3,210
  3,476
  3,752
  4,040
  4,339
  4,650
  4,974
  5,311
  5,662
  6,028
  6,409
  6,807
  7,223
  7,657
  8,110
  8,583
  9,078
  9,596
Earnings before tax, $m
  7,592
  6,461
  7,315
  8,213
  9,156
  10,144
  11,175
  12,250
  13,369
  14,534
  15,746
  18,345
  19,653
  21,012
  22,425
  23,894
  25,421
  27,010
  28,664
  30,386
  32,180
  34,050
  36,000
  38,034
  40,158
  42,375
  44,692
  47,113
  49,645
  52,293
  55,063
Tax expense, $m
  1,709
  1,744
  1,975
  2,218
  2,472
  2,739
  3,017
  3,307
  3,610
  3,924
  4,251
  4,953
  5,306
  5,673
  6,055
  6,451
  6,864
  7,293
  7,739
  8,204
  8,689
  9,193
  9,720
  10,269
  10,843
  11,441
  12,067
  12,721
  13,404
  14,119
  14,867
Net income, $m
  5,651
  4,716
  5,340
  5,996
  6,684
  7,405
  8,158
  8,942
  9,760
  10,610
  11,494
  13,392
  14,347
  15,339
  16,370
  17,443
  18,558
  19,717
  20,925
  22,182
  23,491
  24,856
  26,280
  27,765
  29,315
  30,934
  32,625
  34,393
  36,241
  38,174
  40,196

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,698
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  48,352
  51,381
  57,464
  63,875
  70,607
  77,658
  85,026
  92,712
  100,718
  109,049
  117,712
  126,717
  136,075
  145,799
  155,906
  166,412
  177,336
  188,701
  200,527
  212,841
  225,668
  239,037
  252,976
  267,519
  282,697
  298,545
  315,101
  332,404
  350,493
  369,412
  389,204
Adjusted assets (=assets-cash), $m
  45,654
  51,381
  57,464
  63,875
  70,607
  77,658
  85,026
  92,712
  100,718
  109,049
  117,712
  126,717
  136,075
  145,799
  155,906
  166,412
  177,336
  188,701
  200,527
  212,841
  225,668
  239,037
  252,976
  267,519
  282,697
  298,545
  315,101
  332,404
  350,493
  369,412
  389,204
Revenue / Adjusted assets
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
Average production assets, $m
  5,403
  6,078
  6,798
  7,556
  8,352
  9,186
  10,058
  10,967
  11,914
  12,900
  13,924
  14,990
  16,097
  17,247
  18,443
  19,685
  20,978
  22,322
  23,721
  25,178
  26,695
  28,276
  29,925
  31,646
  33,441
  35,316
  37,274
  39,321
  41,461
  43,699
  46,040
Working capital, $m
  612
  1,777
  1,987
  2,209
  2,442
  2,686
  2,941
  3,206
  3,483
  3,771
  4,071
  4,382
  4,706
  5,042
  5,392
  5,755
  6,133
  6,526
  6,935
  7,361
  7,805
  8,267
  8,749
  9,252
  9,777
  10,325
  10,897
  11,496
  12,121
  12,776
  13,460
Total debt, $m
  23,700
  25,475
  30,232
  35,245
  40,510
  46,024
  51,786
  57,796
  64,056
  70,571
  77,346
  84,388
  91,705
  99,310
  107,213
  115,429
  123,972
  132,859
  142,107
  151,737
  161,768
  172,222
  183,123
  194,495
  206,364
  218,757
  231,704
  245,235
  259,380
  274,175
  289,653
Total liabilities, $m
  38,405
  40,180
  44,937
  49,950
  55,215
  60,729
  66,491
  72,501
  78,761
  85,276
  92,051
  99,093
  106,410
  114,015
  121,918
  130,134
  138,677
  147,564
  156,812
  166,442
  176,473
  186,927
  197,828
  209,200
  221,069
  233,462
  246,409
  259,940
  274,085
  288,880
  304,358
Total equity, $m
  9,947
  11,201
  12,527
  13,925
  15,392
  16,930
  18,536
  20,211
  21,956
  23,773
  25,661
  27,624
  29,664
  31,784
  33,987
  36,278
  38,659
  41,137
  43,715
  46,399
  49,196
  52,110
  55,149
  58,319
  61,628
  65,083
  68,692
  72,464
  76,407
  80,532
  84,847
Total liabilities and equity, $m
  48,352
  51,381
  57,464
  63,875
  70,607
  77,659
  85,027
  92,712
  100,717
  109,049
  117,712
  126,717
  136,074
  145,799
  155,905
  166,412
  177,336
  188,701
  200,527
  212,841
  225,669
  239,037
  252,977
  267,519
  282,697
  298,545
  315,101
  332,404
  350,492
  369,412
  389,205
Debt-to-equity ratio
  2.383
  2.270
  2.410
  2.530
  2.630
  2.720
  2.790
  2.860
  2.920
  2.970
  3.010
  3.050
  3.090
  3.120
  3.150
  3.180
  3.210
  3.230
  3.250
  3.270
  3.290
  3.300
  3.320
  3.340
  3.350
  3.360
  3.370
  3.380
  3.390
  3.400
  3.410
Adjusted equity ratio
  0.159
  0.218
  0.218
  0.218
  0.218
  0.218
  0.218
  0.218
  0.218
  0.218
  0.218
  0.218
  0.218
  0.218
  0.218
  0.218
  0.218
  0.218
  0.218
  0.218
  0.218
  0.218
  0.218
  0.218
  0.218
  0.218
  0.218
  0.218
  0.218
  0.218
  0.218

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  5,651
  4,716
  5,340
  5,996
  6,684
  7,405
  8,158
  8,942
  9,760
  10,610
  11,494
  13,392
  14,347
  15,339
  16,370
  17,443
  18,558
  19,717
  20,925
  22,182
  23,491
  24,856
  26,280
  27,765
  29,315
  30,934
  32,625
  34,393
  36,241
  38,174
  40,196
Depreciation, amort., depletion, $m
  738
  1,592
  1,622
  1,654
  1,687
  1,721
  1,757
  1,795
  1,834
  1,875
  1,918
  622
  668
  716
  765
  817
  870
  926
  984
  1,045
  1,108
  1,173
  1,242
  1,313
  1,388
  1,465
  1,547
  1,632
  1,720
  1,813
  1,910
Funds from operations, $m
  3,642
  6,309
  6,962
  7,649
  8,371
  9,126
  9,915
  10,738
  11,594
  12,485
  13,412
  14,014
  15,014
  16,055
  17,136
  18,259
  19,428
  20,644
  21,909
  23,226
  24,599
  26,030
  27,522
  29,078
  30,703
  32,399
  34,172
  36,024
  37,961
  39,987
  42,107
Change in working capital, $m
  -1,962
  199
  210
  222
  233
  244
  255
  266
  277
  288
  300
  311
  324
  336
  350
  363
  378
  393
  409
  426
  444
  462
  482
  503
  525
  548
  573
  598
  626
  654
  685
Cash from operations, $m
  5,604
  6,110
  6,752
  7,428
  8,138
  8,882
  9,660
  10,472
  11,317
  12,197
  13,113
  13,702
  14,691
  15,718
  16,786
  17,896
  19,050
  20,251
  21,500
  22,801
  24,155
  25,567
  27,039
  28,575
  30,178
  31,851
  33,599
  35,426
  37,336
  39,333
  41,422
Maintenance CAPEX, $m
  0
  -224
  -252
  -282
  -314
  -347
  -381
  -417
  -455
  -494
  -535
  -578
  -622
  -668
  -716
  -765
  -817
  -870
  -926
  -984
  -1,045
  -1,108
  -1,173
  -1,242
  -1,313
  -1,388
  -1,465
  -1,547
  -1,632
  -1,720
  -1,813
New CAPEX, $m
  -819
  -675
  -720
  -758
  -796
  -834
  -872
  -909
  -947
  -985
  -1,025
  -1,065
  -1,107
  -1,150
  -1,196
  -1,243
  -1,292
  -1,344
  -1,399
  -1,457
  -1,517
  -1,581
  -1,649
  -1,720
  -1,795
  -1,875
  -1,958
  -2,047
  -2,140
  -2,238
  -2,341
Cash from investing activities, $m
  -778
  -899
  -972
  -1,040
  -1,110
  -1,181
  -1,253
  -1,326
  -1,402
  -1,479
  -1,560
  -1,643
  -1,729
  -1,818
  -1,912
  -2,008
  -2,109
  -2,214
  -2,325
  -2,441
  -2,562
  -2,689
  -2,822
  -2,962
  -3,108
  -3,263
  -3,423
  -3,594
  -3,772
  -3,958
  -4,154
Free cash flow, $m
  4,826
  5,211
  5,780
  6,387
  7,028
  7,702
  8,407
  9,145
  9,915
  10,718
  11,553
  12,059
  12,962
  13,900
  14,875
  15,888
  16,941
  18,036
  19,175
  20,360
  21,593
  22,878
  24,217
  25,613
  27,069
  28,589
  30,175
  31,832
  33,564
  35,374
  37,267
Issuance/(repayment) of debt, $m
  -443
  4,473
  4,757
  5,013
  5,265
  5,514
  5,762
  6,010
  6,260
  6,515
  6,775
  7,042
  7,318
  7,605
  7,903
  8,216
  8,543
  8,887
  9,249
  9,629
  10,031
  10,454
  10,901
  11,372
  11,869
  12,394
  12,947
  13,530
  14,146
  14,794
  15,478
Issuance/(repurchase) of shares, $m
  -78
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -1,603
  4,473
  4,757
  5,013
  5,265
  5,514
  5,762
  6,010
  6,260
  6,515
  6,775
  7,042
  7,318
  7,605
  7,903
  8,216
  8,543
  8,887
  9,249
  9,629
  10,031
  10,454
  10,901
  11,372
  11,869
  12,394
  12,947
  13,530
  14,146
  14,794
  15,478
Total cash flow (excl. dividends), $m
  3,442
  9,683
  10,537
  11,400
  12,293
  13,216
  14,169
  15,155
  16,176
  17,232
  18,327
  19,101
  20,280
  21,505
  22,778
  24,104
  25,484
  26,923
  28,423
  29,989
  31,624
  33,332
  35,118
  36,985
  38,938
  40,982
  43,122
  45,363
  47,710
  50,169
  52,746
Retained Cash Flow (-), $m
  -3,997
  -1,254
  -1,326
  -1,398
  -1,468
  -1,537
  -1,606
  -1,675
  -1,745
  -1,816
  -1,889
  -1,963
  -2,040
  -2,120
  -2,203
  -2,290
  -2,382
  -2,477
  -2,578
  -2,684
  -2,796
  -2,914
  -3,039
  -3,170
  -3,309
  -3,455
  -3,609
  -3,772
  -3,943
  -4,124
  -4,315
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  8,429
  9,211
  10,003
  10,825
  11,678
  12,563
  13,480
  14,430
  15,416
  16,439
  17,138
  18,240
  19,385
  20,575
  21,813
  23,102
  24,445
  25,845
  27,305
  28,828
  30,418
  32,079
  33,815
  35,630
  37,527
  39,513
  41,591
  43,766
  46,045
  48,431
Discount rate, %
 
  7.70
  8.09
  8.49
  8.91
  9.36
  9.83
  10.32
  10.83
  11.38
  11.95
  12.54
  13.17
  13.83
  14.52
  15.25
  16.01
  16.81
  17.65
  18.53
  19.46
  20.43
  21.45
  22.52
  23.65
  24.83
  26.07
  27.38
  28.75
  30.18
  31.69
PV of cash for distribution, $m
 
  7,827
  7,884
  7,834
  7,693
  7,466
  7,159
  6,779
  6,337
  5,846
  5,319
  4,672
  4,133
  3,599
  3,083
  2,596
  2,147
  1,742
  1,386
  1,080
  823
  613
  446
  316
  218
  147
  96
  60
  37
  22
  13
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

British American Tobacco p.l.c. engages in the production and sale of tobacco products. It provides cigarettes and cigars; snus, a low-toxicant smokeless tobacco product; and e-cigarettes and other products, such as vapor and tobacco heating products, as well as nicotine inhalers. The company offers its products under the Dunhill, Kent, Lucky Strike, Pall Mall, Rothmans, Vogue, Viceroy, Kool, Peter Stuyvesant, Craven A, Benson & Hedges, John Player Gold Leaf, State Express 555, and Shuang Xi brands. It also operates a retail outlet under Vype brand name in Milan. British American Tobacco p.l.c. sells its products in the Americas, Eastern and Western Europe, the Middle East, Africa, and the Asia-Pacific. The company was founded in 1902 and is headquartered in London, United Kingdom.

FINANCIAL RATIOS  of  British American Tobacco ADR (BTI)

Valuation Ratios
P/E Ratio 20.1
Price to Sales 6.3
Price to Book 11.4
Price to Tangible Book
Price to Cash Flow 20.2
Price to Free Cash Flow 23.7
Growth Rates
Sales Growth Rate 12.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 12%
Cap. Spend. - 3 Yr. Gr. Rate -1.4%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 201.5%
Total Debt to Equity 238.3%
Interest Coverage 11
Management Effectiveness
Return On Assets 14.4%
Ret/ On Assets - 3 Yr. Avg. 14.7%
Return On Total Capital 18.8%
Ret/ On T. Cap. - 3 Yr. Avg. 19.2%
Return On Equity 71.1%
Return On Equity - 3 Yr. Avg. 68.3%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 74.7%
Gross Margin - 3 Yr. Avg. 76.6%
EBITDA Margin 50.8%
EBITDA Margin - 3 Yr. Avg. 48.6%
Operating Margin 31.6%
Oper. Margin - 3 Yr. Avg. 33%
Pre-Tax Margin 42.3%
Pre-Tax Margin - 3 Yr. Avg. 40.6%
Net Profit Margin 31.5%
Net Profit Margin - 3 Yr. Avg. 28.8%
Effective Tax Rate 22.5%
Eff/ Tax Rate - 3 Yr. Avg. 25.1%
Payout Ratio 62.6%

BTI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BTI stock intrinsic value calculation we used $17933 million for the last fiscal year's total revenue generated by British American Tobacco ADR. The default revenue input number comes from 2016 income statement of British American Tobacco ADR. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our BTI stock valuation model: a) initial revenue growth rate of 12.6% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 7.7%, whose default value for BTI is calculated based on our internal credit rating of British American Tobacco ADR, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of British American Tobacco ADR.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of BTI stock the variable cost ratio is equal to 65.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for BTI stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for British American Tobacco ADR.

Corporate tax rate of 27% is the nominal tax rate for British American Tobacco ADR. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the BTI stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for BTI are equal to 30.1%.

Life of production assets of 24.1 years is the average useful life of capital assets used in British American Tobacco ADR operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for BTI is equal to 8.8%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $9947 million for British American Tobacco ADR - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 1828.93 million for British American Tobacco ADR is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of British American Tobacco ADR at the current share price and the inputted number of shares is $111.2 billion.

RELATED COMPANIES Price Int.Val. Rating
RAI Reynolds Ameri 65.40 43.39  sell
PM Philip Morris 115.33 10.97  str.sell
MO Altria Group 63.69 41.35  sell
VGR Vector Group 21.13 5.22  str.sell

COMPANY NEWS

▶ Crushed by New FDA Tobacco Plan, Altria Stock Is a Buy   [Aug-10-17 08:54AM  Motley Fool]
▶ [$$] BAT's European bonds attract strong demand   [Aug-09-17 01:29PM  Financial Times]
▶ BAT's Cheap Smokes   [06:22AM  Bloomberg]
▶ [$$] Treasurys Edge Lower on New Debt Supply   [12:49AM  The Wall Street Journal]
▶ [$$] BAT's $17bn bond sale is the second-largest of the year   [Aug-08-17 06:43PM  Financial Times]
▶ [$$] Treasurys Edge Lower on New Debt Supply   [10:49AM  The Wall Street Journal]
▶ BAT's $25 Billion Lucky Strike   [06:20AM  Bloomberg]
▶ [$$] Big Tobaccos Next Big Thing? Tobacco   [Aug-07-17 12:04AM  The Wall Street Journal]
▶ [$$] Big Tobacco's Next Big Thing? Tobacco   [Aug-06-17 07:00AM  The Wall Street Journal]
▶ [$$] Weaker pound and BAT help boost FTSE 100   [01:52PM  Financial Times]
▶ BAT now formally under investigation for bribery   [Aug-02-17 12:27PM  American City Business Journals]
▶ 2 Top Dividend Stocks in E-Cigarettes   [08:33AM  Motley Fool]
▶ [$$] Big Tobacco told to read FDA smoke signals on ecigarettes   [Jul-30-17 12:21PM  Financial Times]
▶ Why Altria is Tanking   [03:31PM  Barrons.com]
▶ Breaking cigarettes in the blitz   [01:41PM  CNBC Videos]
▶ Reynolds shareholders approve $54.5B acquisition by BAT   [12:34PM  American City Business Journals]
▶ Better Buy: Coca-Cola vs. Reynolds American   [Jul-09-17 10:34AM  Motley Fool]
▶ What's the Future of Cigarette Stocks?   [Jul-05-17 09:14AM  Motley Fool]
▶ Altria and Philip Morris' Worst Move So Far in 2017   [Jun-29-17 08:47AM  Motley Fool]
▶ [$$] BAT gets currency boost as it looks to 'outperform' peers   [Jun-14-17 02:30PM  Financial Times]
▶ Raising Fair Value of Reynolds American   [12:30AM  Morningstar]
▶ New Strong Buy Stocks for June 6th   [Jun-06-17 10:51AM  Zacks]
▶ Better Buy: Altria Group Inc. vs. Reynolds American   [Jun-05-17 10:39AM  Motley Fool]
▶ New Strong Buy Stocks for June 1st   [Jun-01-17 09:05AM  Zacks]
▶ 3 Stocks to Buy With Dividends Yielding More Than 3%   [May-25-17 04:56PM  Motley Fool]
▶ New Strong Buy Stocks for May 24th   [May-24-17 10:15AM  Zacks]
▶ Tobacco Industry Earnings Reverse Winning Streak   [May-03-17 04:42PM  Investopedia]
▶ Why Big Tobacco Didnt Fail   [Apr-23-17 12:24PM  MarketWatch]
▶ [$$] Crest Nicholson chief cashes in   [Apr-21-17 11:50AM  Financial Times]
▶ 10 Best Selling Cigarette Brands In India   [Apr-11-17 09:00AM  Insider Monkey]
▶ British American-Reynolds American Deal Approved in Japan   [Apr-06-17 12:03PM  GuruFocus.com]
▶ 15 Most Expensive Cigarette Brands In The World   [Apr-04-17 10:33AM  Insider Monkey]
▶ The 3 Best E-Cigarette Stocks to Buy in 2017   [Mar-30-17 04:23PM  Motley Fool]
▶ 4 Top Dividend Stocks in Tobacco   [Mar-27-17 01:00PM  Motley Fool]
▶ 5 Best Selling Ultra-Light Cigarettes in the World   [01:44PM  at Insider Monkey]
▶ What's Behind the Rally in Tobacco Stocks?   [Mar-21-17 03:08PM  Zacks]
▶ British American Tobacco Set to Light It Up   [10:52AM  TheStreet.com]
▶ Trump's Tax Plan May Still Impact Mega Tobacco Merger   [Mar-18-17 12:05PM  at Motley Fool]
Stock chart of BTI Financial statements of BTI
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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