Valuation Study of British American Tobacco using Financial Tools

This report focuses on the valuation study of British American Tobacco using various financial tools such as EVA analysis, total shareholder return, net asset value, ratios, discounted cash flows etc. The report concludes that the stock price of the company is undervalued and thus the company is not a good choice for the purpose of investment.

Running Head: Corporate Finance
1
Project Report: Corporate Finance

Corporate Finance
2
Executive summary
A valuation study has been performed on the British American Tobacco in the report.
It focuses on the economic valuation model, net asset valuation model, total share holder
return, comparable ratio, discounted cash flows etc methods to identify the position of the
business in terms of the investment. The EVA analysis express that the current EVA of the
company is $ 4743796.77. the total shareholder return of last 5 years are 28.39%. the position
of TSR is highest in the current market.
Further, the DCF valuation method expresses that the intrinsic value of the company
is lower than the market value which means the stock is overvalued. On the basis of the
study, the stock price of the company is undervalued and thus the company is not a good
choice for the purpose of investment.

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Contents
Introduction...........................................................................................................................................4
Company overview................................................................................................................................4
EVA analysis.........................................................................................................................................4
Total shareholder return.........................................................................................................................5
Net asset value.......................................................................................................................................7
Comparable ratios..................................................................................................................................7
Discounted cash flow............................................................................................................................9
Conclusion...........................................................................................................................................10
References...........................................................................................................................................11
Appendix.............................................................................................................................................13

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Introduction:
The report has been prepared to identify the various tools to identify the value of a
business in the marketplace. A business and the investors are required to identify various
tools and techniques on the basis of which the correct worth of the business could be
recognized. In this report, BRITISH AMERICAN TOBACCO PLC has been taken into the
concern and various financial tools such as EVA analysis, total shareholder return, net asset
value, ratios, discounted cash flows etc have been calculated on the company to reach over a
conclusion about the overall performance of the company in the market and the investment
position of the company (Lumby and Jones, 2007).
Company overview:
BRITISH AMERICAN TOBACCO PLC is a British multinational company which
operates its activities under tobacco industry in the US market. Headquarter of the company
is in London. The company services its products and revises at worldwide. It is one of the
leading companies in around 50 countries in tobacco industry. The company has managed
better strategies and financial planning to improve the overall performance of the business in
the industry (Home, 2018).
EVA analysis:
Economic value added is a measurement tool to identify the residual value of an
organization. It valuates the financial performance of the business on the basis of the
operating profits and the cost of capita of the business. It briefs the exact economic value of
the business (Madura, 2014). The EVA analysis has been done on BRITISH AMERICAN
TOBACCO PLC to identify the economic worth of the business.
For analyzing the EVA figures of the business, the operating profit of the business has
been collected form the annual report of the company. The US corporate tax which is 20%
has been taken into the context further. The WACC of each year has been calculated through
collecting the data from various authentic websites and the US official websites. On the basis
of the overall EVA analysis, it has been found that the EVA position of the company as
enough strong in the year of 2013. But along with the time, a decrement has been seen in the
economic profit position of the company (lord, 2007).

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The current year performance of BRITISH AMERICAN TOBACCO PLC explains
that the economic profit level of the company is highest and thus the company is performing
better in the market. The investment level of the company has also been improved.
Figure 1: Economic Value analysis
(Morningstar, 2018)
Total shareholder return:
Further, the study has been done on the total shareholder return of the company (Lord,
2007). Total shareholder return (TSR) is a measurement tool which evaluates the
performance of the stock of a business, it combines the share price, and dividend paid etc
items of the company to identify the total return to shareholder which is mainly expressed in
the percentage form (Lee and Lee, 2006).
In case of BRITISH AMERICAN TOBACCO PLC, it has been found that the total
shareholder return of the company was 51.58%, 19.65%, -2.58%, 44.22% and 29.11%
respectively in the year of 2017, 2016, 2015, 2014 and 2013. It expresses that the worth of
the shareholders in the business was highest in the year of 2017. The huge changes have
occurred due to the great increment in the stock price of the company in the year of 2017
(Morningstar, 2018). Further, it has been found that the overall position of the company is
improving constantly and because of it, the total shareholder return of the company is also
showing positive result. It briefs a better investment position in the company.

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Figure 2: Total shareholder return
Yearend
dates
28/01/201
7
30/01/
2016
24/01/201
5
25/01/2
014
26/01/201
3
5 year
total
1 Closing
stock price
£
4848.258
79
4313.4
497
3394.646
5
3025.76
2
2681.454
834
3652.71
436
2 Add
dividends
£ 2.19 1.56 1.52 1.45 1.41
1.626
3 Less
opening
stock price
£
3200 3606.5 3486 2099 2078 2893.9
4 TSR - £ 1650.448
79
708.50
971
-
89.83351
6
928.211
96
604.8648
34
760.440
355
5 TSR
(percentag
e of
opening
price)
51.58% 19.65
%
-2.58% 44.22% 29.11% 0.28394
911
(Morningstar, 2018)

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Further, the comparison has been done among the stock price of the British American
tobacco Plc and the competitors valuation and it has been found that the overall position of
the company is very lowered in the industry in terms of P/E ratio, Price book ratio, price sales
ratio etc. (Jiashu, 2009) the below image depicts that the huge changes are required to be
done by the company in order to improve the overall performance of the business (Jiashu,
2009). The changes could help the company to improve the overall performance in the
market.
Net asset value:
Net asset value is the valuation model which describes that total value of the business
on the basis of an organization’s assets minus the liabilities value of the business. The net
asset value of a company is recognized in order to identify the overall performance of the
business and the total equity value of the business to run the operations of the business
smoothly (Horngren, 2009). The net asset value method has been applied on BRITISH
AMERICAN TOBACCO PLC to recognize the worth of the business on the basis of its
equity amount.
In case of BRITISH AMERICAN TOBACCO PLC, it has been found that the net
asset value of the company has been improved in the year of 2017 at huge level. The overall
value of the company was better in earlier months as well but in the recent year, a huge
increment has been seen. The net shareholder value of the business has been improved from $
348.97 to $ 2974.75 from 2013 to 2017. It express that the worth of the company has been
improved at great level and thus the company is a good choice for the purpose of investment.

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Figure 3: Net asset value method
(Yahoo Finance, 2018)
Comparable ratios:
Ratio analysis is one of the financial analysis tools which are applied on the financial
statement of the company to recognize the various financial level of the business. It makes it
easier for the business and the stakeholders of the business to identify the changes into the
business at different level. The comparable ratios of the BRITISH AMERICAN TOBACCO
PLC have been done to recognize the changes into the performance of the company. The
different ratios of the company have been calculated which are as follows:
Price earnings ratio:
Price earnings ratio is an investment ratio which depicts the total price and earnings
relation in a business (Higgins, 2012). The comparison has been done among the price
earnings ratio of the British American tobacco Plc and the competitors and it has been found
that the overall position of the company is much lowered in the industry in terms of P/E ratio.
The below image depicts that the PE ratio of BTI is 2 and the industry average is 14.2 which
depict huge differences. And thus the business is required to improve the profitability level
and market position so that the PE level could be improved.
Price book value ratio:

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9
Further, the Price book ratio has been calculated which is also an investment ratio and
depicts the total market price of a stock against the book stock price of the company. The
comparison has been done among the price book ratio of the British American tobacco Plc
and the competitors and it has been found that the overall position of the company is very
lowered in the industry in terms of price book ratio (Horngren, 2009). The below image
depicts that the Price book ratio of BTI is 1.3 and the industry average is 7.2 which depict
huge differences. And thus the business is required to improve the market position so that the
PE level could be improved.
EV/EBITDA:
Further, the EV/EBITDA ratio has been calculated which is also an investment ratio
and depicts the total enterprise value of a business against the earnings before the interest,
taxes, dividend and the amortization of the company (Hillier, Grinblatt and Titman, 2011).
The comparison has been done among the price book ratio of the British American tobacco
Plc and the competitors and it has been found that the overall position of the company is very
lowered in the industry in terms of managing the enterprise value against the EBITDA. The
company is required to make the changes into the financial strategies and policies so that the
profitability level of the company could be improved and the company get succeed to make a
better position in the market.
Discounted cash flow:
Discounted cash flow method is one of the crucial business valuation models. It takes
the concern on the historical cash flows position of the business to estimate the future cash
flows of the business. On the basis of which an intrinsic value of the business is calculated
and it is compared to the market book price of the company to identify that how much
changes have taken place into the overall position of the company in a given period of time
(Higgins, 2012).
The discounted cash flow method has been applied on BRITISH AMERICAN
TOBACCO PLC. Firstly, the future cash flows of the business have been calculated on the
basis of the last 5 years cash flows of the business. It has been found that the FCFF of the
company is $ 34,27,444.60. the growth rate among the dividends of the company are 12.67%
which is quite higher in the industry and thus the industry data has been taken to measure the
overall growth of the business which s 3.33% (Appendix).

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In addition, firstly the future cash flows of the next 10 years have been calculated and
it has been found that the terminal cash flow of the business is $ 49,14,644.57. The present
value method has been applied on the future cash flows and the terminal cash flows of the
business to identify the current worth of the business (Appendix). The WACC i.e. 1.17% rate
has been applied on the future cash flows and terminal cash flows of the business and it has
been found that the total PV of next 10 year cash outflows of the business are $
38,569,707.91 (Investing, 2018).
The present value of terminal cash flows of the business is $ 52,622,162.78 which
was earlier $ 4,914,644.57. On the basis of present value of terminal cash flows of the
business, the valuation process has been applied on the financial figures of the company.
Firstly, the total worth of the business has been calculated through adding the terminal cash
flows and the PV of future cash flows of the business (Appendix). The total value of the firm
is $ 91,191,870.68. Further, the total debt amount of the company has been deducted from the
total value of the firm to recognize the value of the equity of the business.
The total value of equity of the business has been estimated $ 26.501,870.98. The
total stock price of the company has been dividend by the outstanding shares of the company
i.e. 20,440 to identify the per share value of equity off the business which is 1296.57. It
express that the intrinsic value of the company is $ 1296.57. However, the market price of the
company is $ 4848 (Yahoo Finance, 2018). It express that the market position of the
company is overvalued.
Conclusion:
On the basis of the various valuation model of the company, it has been found that the
BRITISH AMERICAN TOBACCO PLC has made various changes into the financial
strategies and policies in last 5 years which impact could be seen in the valuation process of
the business. However, on the basis of the overall financial valuation model, it has been
found that the stock price of the company is undervalued. The market price of the company is
$ 4848 in current market. On the other hand, the intrinsic value of the company from the
entire valuation model is lower the market value and thus it is concluded that the stock price
of the company is undervalued.

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The valuation method makes it easier for the investors and the financial analyst to
identify the economical profit and worth of the business and make better decision about the
investment level of the business.

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12
References:
Gapenski, L.C., 2008. Healthcare finance: an introduction to accounting and financial
management. Health Administration Press.
Government publications. 2018. Rates and allowances. [online]. Available at:
https://www.gov.uk/government/publications/rates-and-allowances-corporation-tax/rates-
and-allowances-corporation-tax (accessed 17/9/18).
Higgins, R. C., 2012. Analysis for financial management. McGraw-Hill/Irwin.
Hillier, D., Grinblatt, M. and Titman, S., 2011. Financial markets and corporate strategy.
McGraw Hill.
Home. 2018.Britsih American tobacco plc. [online]. Available at: http://www.bat.com/
(accessed 17/9/18).
Horngren, C.T., 2009. Cost accounting: A managerial emphasis, 13/e. Pearson Education
India.
Investing. 2018.Bond rates. [online]. Available at: https://uk.investing.com/rates-bonds/uk-5-
year-bond-yield-historical-data (accessed 17/9/18).
Jiashu, G., 2009. Study on Fair Value Accounting——on the essential characteristics of
financial accounting [J]. Accounting Research, 5, p.003.
Lee.C.F and Lee, A, C,.2006. Encyclopedia of finance, Springer science, new York
Lord, B.R., 2007. Strategic management accounting. Issues in Management Accounting, 3
(2). P. 17.
Lumby,S and Jones,C,.2007. Corporate finance theory & practice, 7th edition, Thomson,
London
Madura, J. 2014. Financial Markets and Institutions. Cengage Learning.
Morningstar. 2018.Britsih American tobacco plc. [online]. Available at:
http://investors.morningstar.com/ownership/shareholders-overview.html?
t=BTI&region=usa&culture=en-US (accessed 17/9/18).

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Yahoo finance. 2018.Britsih American tobacco plc. [online]. Available at:
https://finance.yahoo.com/quote/bti?ltr=1 (accessed 17/9/18).

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Appendix:
Calculation of Economic Value Added
Particulars 2017 2016 2015 2014 2013
Operating profit
Amount in GBP '000
6470000 4653000 4591000 4653000 5571000
Less:
Tax @ 20% 1294000 930600 918200 930600 1114200
Net Operating Profit
After Tax (A)
5176000 3722400 3672800 3722400 4456800
WACC (B) 1.17% 2.07% 2.17% 3.09% 2.86%
Invested Capital (C ) 36983000 3331000 1754000 1578000 2398000
D= BXC 432203.23 69002.41 37979.94 48743.39 68555.36
Economic Value
Added (A-D)
4743796.77 3653397.59 3634820.06 3673656.61 4388244.64
Calculation of Total Share holder return
Particulars 2017 2016 2015 2014 2013
Market price of
shares
4848.25879 4313.4497 3394.6465 3025.762 2681.4548
Capital Gain or loss 534.809082 918.80322 368.88452 344.30713
Dividend Per Share 2.19 1.56 1.52 1.45 1.41
TSR 536.999082 920.36322 370.40452 345.75713
TSR % 11.08% 21.34% 10.91% 11.43%
2017
Cost of Equity: CAPM model
A. Risk free rate 1.12%
B. Market rate of return (S&P500 2016
return)
3.03%
C. Beta -
0.097918
D. CAPM 0.93%
Cost of debt:
Net finance cost ($'000) 1124000
Less: Tax @30% 224800
After tax cost of debt 899200

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Borrowings amount 64690000
After tax cost of debt (%)
[3517.50/135794]
1.39%
Debt 64690000
Equity 60804000
Debt Ordinary
Shares
Total
Cost of Finance 1.39% 0.93%
Market Weights
0.52
0.48
WACC 0.72% 0.45% 1.17%
2016
Cost of Equity: CAPM model
A. Risk free rate 1.12%
B. Market rate of return (S&P500 2016
return)
5.10%
C. Beta -0.1514
D. CAPM 0.52%
Cost of debt:
Net finance cost ($'000) 670000
Less: Tax @30% 134000
After tax cost of debt 536000
Borrowings amount 19735000
After tax cost of debt (%)
[3517.50/135794]
2.72%
Debt 19735000
Equity 8182000
Debt Ordinary
Shares
Total
Cost of Finance 2.72% 0.52%
Market Weights 0.71 0.29
WACC 1.92% 0.15% 2.07%

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16
2015
Cost of Equity: CAPM model
A. Risk free rate 1.12% https://uk.investing.com/rates-bonds/uk-5-year-bond-
yield-historical-data
B. Market rate of return
(S&P500 2016 return)
-1.22%
C. Beta 0.288096
D. CAPM 0.45%
Cost of debt:
Net finance cost ($'000) 582000
Less: Tax @30% 116400
After tax cost of debt 465600
Borrowings amount 17615000
After tax cost of debt (%)
[3517.50/135794]
2.64%
Debt 17615000
Equity 4894000
Debt Ordinary Shares Total
Cost of Finance 2.64% 0.45%
Market Weights 0.78 0.22
WACC 2.07% 0.10% 2.17%
2014
Cost of Equity: CAPM model
A. Risk free rate 1.12%
B. Market rate of return (S&P500 2016
return)
2.28%
C. Beta 0.083007
D. CAPM 1.22%
Cost of debt:
Net finance cost ($'000) 588000
Less: Tax @30% 117600

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After tax cost of debt 470400
Borrowings amount 11888000
After tax cost of debt (%)
[3517.50/135794]
3.96%
Debt 11888000
Equity 5510000
Debt Ordinary
Shares
Total
Cost of Finance 3.96% 1.22%
Market Weights 0.68 0.32
WACC 2.70% 0.39% 3.09%
2013
Cost of Equity: CAPM model
A. Risk free rate 1.12%
B. Market rate of return (S&P500 2016
return)
3.02%
C. Beta -0.3034
D. CAPM 0.54%
Cost of debt:
Net finance cost ($'000) 614000
Less: Tax @30% 122800
After tax cost of debt 491200
Borrowings amount 11811000
After tax cost of debt (%)
[3517.50/135794]
4.16%
Debt 11811000
Equity 6634000
Debt Ordinary
Shares
Total
Cost of Finance 4.16% 0.54%
Market Weights 0.64 0.36
WACC 2.66% 0.20% 2.86%

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18
BRITISH
AMERICAN
TOBACCO PLC
FTSE 100 Beta
Date Adj
Close
Return Adj
Close
Return
1/01/2013 2613.972 1493.629 https://finance.yahoo.com/quote/%5EFTSE?P=FTSE
1/02/2013 2734.599 4.61% 1493.629 4.52%
1/03/2013 2808.248 2.69% 1564.419 0.03%
31/03/2013 2914.068 3.77% 1564.843 1.57%
30/04/2013 2960.647 1.60% 1589.797 -7.58%
31/05/2013 2751.857 -7.05% 1477.848 14.12%
30/06/2013 2865.037 4.11% 1720.879 7.67%
31/07/2013 2659.925 -7.16% 1863.75 2.56%
31/08/2013 2713.338 2.01% 1912.72 9.64%
30/09/2013 2845.423 4.87% 2116.735 6.38%
1/11/2013 2700.502 -5.09% 2261.086 5.16%
1/12/2013 2681.455 -0.71% 2384.185 -
10.77%
1/01/2014 2414.8 -9.94% 2152.381 5.12%
1/02/2014 2691.393 11.45% 2268.575 6.43%
1/03/2014 2762.197 2.63% 2424.419 9.94%
31/03/2014 2914.83 5.53% 2691.994 7.27%
30/04/2014 3071.362 5.37% 2903.101 6.92%
31/05/2014 2966.866 -3.40% 3119.045 2.87%
30/06/2014 2971.13 0.14% 3211.31 7.22%
31/07/2014 3031.27 2.02% 3461.118 -1.22%
31/08/2014 3010.2 -0.70% 3419.456 7.20%
30/09/2014 3066.393 1.87% 3684.601 10.12%
1/11/2014 3280.358 6.98% 4099.485 -6.79%
1/12/2014 3025.762 -7.76% 3838.948 6.14%
1/01/2015 3243.616 7.20% 4090.184 9.64%
1/02/2015 3269.552 0.80% 4526.79 -2.75%
1/03/2015 3015.82 -7.76% 4405.425 0.58%
31/03/2015 3190.276 5.78% 4431.065 4.10%
30/04/2015 3201.821 0.36% 4620.461 -3.32%
31/05/2015 3032.649 -5.28% 4471.966 -3.29%
30/06/2015 3375.432 11.30% 4329.413 -6.91%
31/07/2015 3089.483 -8.47% 4049.643 -1.88%
31/08/2015 3279.421 6.15% 3974.99 8.34%
30/09/2015 3474.314 5.94% 4336.71 -1.00%
1/11/2015 3481.966 0.22% 4293.594 -
10.64%

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19
1/12/2015 3394.646 -2.51% 3880.62 -7.52%
1/01/2016 3508.071 3.34% 3609.066 -0.67%
1/02/2016 3533.727 0.73% 3585.126 13.33%
1/03/2016 3681.81 4.19% 4136.654 -
13.99%
31/03/2016 3851.685 4.61% 3628.896 6.53%
30/04/2016 3877.547 0.67% 3882.363 -3.68%
31/05/2016 4473.311 15.36% 3744.451 9.01%
30/06/2016 4456.223 -0.38% 4115.065 1.81%
31/07/2016 4364.319 -2.06% 4191.076 7.13%
31/08/2016 4601.386 5.43% 4512.728 0.43%
30/09/2016 4378.784 -4.84% 4532.372 -2.66%
1/11/2016 4100.646 -6.35% 4414.941 5.33%
1/12/2016 4313.45 5.19% 4663.681 4.77%
1/01/2017 4572.919 6.02% 4897.52 12.89%
1/02/2017 4741.387 3.68% 5622.119 5.32%
1/03/2017 4946.723 4.33% 5938.25 -0.01%
31/03/2017 4980.839 0.69% 5937.835 6.34%
30/04/2017 5281.695 6.04% 6339.9 -5.33%
31/05/2017 4998.986 -5.35% 6018.955 3.27%
30/06/2017 4501.857 -9.94% 6222.452 10.27%
31/07/2017 4614.081 2.49% 6934.402 -5.66%
31/08/2017 4513.963 -2.17% 6563.228 9.68%
30/09/2017 4706.231 4.26% 7266.701 1.66%
1/11/2017 4530.388 -3.74% 7389.539 -1.17%
1/12/2017 4848.259 7.02% 7304.04 -1.06%
Net Assets Value
BRITISH AMERICAN TOBACCO PLC
Fiscal year ends in December. GBP in
thousands except per share data.
2017-
12
2016-
12
2015-
12
2014-
12
2013-
12
Assets
Current assets
Cash
Cash and cash equivalents 31310
00
20470
00
17940
00
16280
00
19480
00
Short-term investments 65000 15000 35000 50000 54000
Total cash 31960
00
20620
00
18290
00
16780
00
20020
00
Receivables 40530
00
38840
00
32660
00
27680
00
28760
00
Inventories 58640
00
57930
00
42470
00
41330
00
40420
00
Other current assets 85300 62000 47200 55300 59800

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20
0 0 0 0 0
Total current assets 13966
000
12359
000
98140
00
91320
00
95180
00
Non-current assets
Property, plant and equipment
Gross property, plant and equipment 81910
00
71490
00
57930
00
59370
00
60760
00
Accumulated Depreciation -
33090
00
-
34880
00
-
27720
00
-
29330
00
-
29200
00
Net property, plant and equipment 48820
00
36610
00
30210
00
30040
00
31560
00
Goodwill 44147
000
11023
000
93240
00
98420
00
10249
000
Intangible assets 73638
000
10940
00
11120
00
96200
0
95600
0
Deferred income taxes 31700
0
43600
0
32600
0
31100
0
24800
0
Prepaid pension benefit 11230
00
45500
0
40800
0
40000 13500
0
Other long-term assets 29650
00
10745
000
75100
00
28760
00
26190
00
Total non-current assets 12707
2000
27414
000
21701
000
17035
000
17363
000
Total assets 14103
8000
39773
000
31515
000
26167
000
26881
000
Liabilities and stockholders' equity
Liabilities
Current liabilities
Capital leases 54230
00
30070
00
21950
00
24790
00
19800
00
Accounts payable 88470
00
73350
00
59370
00
55240
00
57410
00
Taxes payable 72000
0
55800
0
41400
0
43000
0
48700
0
Other current liabilities 55400
0
95600
0
46000
0
33600
0
22800
0
Total current liabilities 15544
000
11856
000
90060
00
87690
00
84360
00
Non-current liabilities
Deferred taxes liabilities 17129
000
65200
0
56300
0
49500
0
51400
0
Pensions and other benefits 18210
00
82600
0
65300
0
78100
0
63200
0
Minority interest 22200
0
22400
0
13800
0
30400
0
30100
0
Other long-term liabilities 45518 18033 16261 10308 10364

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21
000 000 000 000 000
Total non-current liabilities 64690
000
19735
000
17615
000
11888
000
11811
000
Total liabilities 80234
000
31591
000
26621
000
20657
000
20247
000
Stockholders' equity
Common stock 61400
0
50700
0
50700
0
50700
0
50700
0
Additional paid-in capital 26602
000
39310
00
17900
0
17500
0
17100
0
Retained earnings 36983
000
33310
00
17540
00
15780
00
23980
00
Accumulated other comprehensive income -
33950
00
41300
0
24540
00
32500
00
35580
00
Total stockholders' equity 60804
000
81820
00
48940
00
55100
00
66340
00
Total liabilities and stockholders' equity 14103
8000
39773
000
31515
000
26167
000
26881
000
Outstanding Shares 20440 18580 18580 18640 19010
Net Assets Value 60804
000
81820
00
48940
00
55100
00
66340
00
Net Assets value per share 2974.7
554
440.3
66
263.4
015
295.6
009
348.9
742
BRITISH AMERICAN TOBACCO PLC
(All amounts are in GBP
'000)
2017 2016 2015 2014 2013
Revenue GBP '000 20,292,0
00
14,751,00
0
13,104,00
0
13,971,00
0
15,260,00
0
Less: direct cost 5,033,00
0
3,733,000 3,033,000 3,030,000 3,243,000
Goss Profit 15,259,0
00
11,018,00
0
10,071,00
0
10,941,00
0
12,017,00
0
Gross Profit Ratio % 75.19712
2
74.693241
14
76.854395
6
78.312218
17
78.748361
73
Operating Income GBP
'000
6470000 4653000 4591000 4653000 5571000
Operating Profit Ratio
%
31.88448
6
31.543624
16
35.035103
79
33.304702
6
36.507208
39
Net Income GBP '000 3753300
0
4648000 4290000 3115000 3904000
Net Profit Ratio % 184.9645
2
31.509728
15
32.738095
24
22.296184
95
25.583224
12

Corporate Finance
22
Earnings Per Share GBP 18.36 2.5 2.31 1.67 2.05
Dividends GBP 2.19 2.19 2.19 2.19 2.19
Payout Ratio % * 11.93% 87.60% 94.81% 131.14% 106.83%
Shares 2044000 1858000 1858000 1864000 1901000
Book Value Per Share *
GBP
300.3913
9
272.87405
81
272.87405
81
271.99570
82
266.70173
59
Market Capitalization 6140000
00
50700000
0
50700000
0
50700000
0
50700000
0
EBIT 6470000 4653000 4591000 4653000 5571000
Less: Net Int Inc &
Other
1124000 670000 582000 588000 614000
EBT 7594000 5323000 5173000 5241000 6185000
EBIT Margin (%) 31.88448
6
31.543624
16
35.035103
79
33.304702
6
36.507208
39
EBT Margin (%) 37.42361
5
36.085689
11
39.476495
73
37.513420
66
40.530799
48
PE Ratio (Times) 16.36118
7
109.14962
33
118.12729
79
162.87168
15
130.09840
78
Return on Equity % 0.62 0.57 0.88 0.57 0.59
Return on Invested
Capital %
1.01 1.40 2.45 1.97 1.63
Interest Coverage 0.174 0.144 0.127 0.126 0.110
BRITISH AMERICAN TOBACCO PLC : Past five Year Free Cash Flows for Firm
2017
($'000)
2016
($'000)
2015
($'000)
2014
($'000)
2013
($'000)
Earnings before interest and tax
6,470,000 4,653,00
0
4,591,00
0
4,653,00
0
5,571,00
0
Less: Tax @20%
1,294,000 930,600 918,200 930,600 1,114,20
0
After tax EBIT
5,176,000 3,722,40
0
3,672,80
0
3,722,40
0
4,456,80
0
Add: Depreciation and

Corporate Finance
23
amortisations 5,124 4,847 9,283 9,762 9,192
Add/Less: Decrease in GE
current receivables 3,548 5,428 (1,913) 8,754 (1,245)
Add/Less: Decrease in
inventories (1,257) 7,854 (564) (1,254) (856)
Add/Less: Increase in accounts
payable 1,257 (800) 1,542 1,360 (1,542)
Add/Less: Increase in GE
progress collections 1,875 (847) (8,564) 875 964
Total
5,186,547 3,738,88
2
3,672,58
4
3,741,89
7
4,463,31
3
Less: Capital expenditure
(978,000) (674,000
)
(601,000
)
(692,000
)
(721,000
)
Free cash flows to the firm
4,208,547 3,064,88
2
3,071,58
4
3,049,89
7
3,742,31
3
Avergae
3,427,44
5
Dividend
Per Share
2.19 1.56 1.52 1.45 1.41
0.40384615 0.02631579 0.04827586 0.02836879
Year GDP ($M) Growth
rate
2013 16155255
2014 16691517 3.32%
2015 17393103 4.20%
2016 18036648 3.70%
2017 18415417.6 2.10%
Average GDP growth
rate
3.33%
Valuation of equity taking free cash flows of firm
Past
average

Corporate Finance
24
FCFF ($'000)
3,427,444.60
Discrete free cash flow growth 12.67% Applied for next 10
years
Permanent growth rate free cash
flow
3.33% Applied after 10 years
Estimated Free cash flows for firm
Year FCFF ($'000) Remarks
2017 3,541,601.45
2018 3,659,560.48
2019 3,781,448.35
2020 3,907,395.89
2021 4,037,538.33
2022 4,172,015.38
2023 4,310,971.42
2024 4,454,555.63
2025 4,602,922.15
2026 4,756,230.27
Terminal cash
flows
4,914,644.57
Present value of discrete cash flows for next 10 years
Year FCFF ($'000) PVF
@1.17%
PV of Cash Flows
1 3,541,601.45
0.988
3,500,643.91
2 3,659,560.48
0.977
3,575,406.53
3 3,781,448.35
0.966
3,651,765.84
4 3,907,395.89
0.955
3,729,755.95
5 4,037,538.33
0.943
3,809,411.67
6 4,172,015.38
0.933
3,890,768.59
7 4,310,971.42
0.922
3,973,863.03

Corporate Finance
25
8 4,454,555.63
0.911
4,058,732.10
9 4,602,922.15
0.901
4,145,413.71
10 4,756,230.27
0.890
4,233,946.56
Total 38,569,707.91
Present value of terminal cash flows
Terminal cash
flows
4,914,644.57 52,622,162.78
Total value of Firm ($'000) 91,191,870.68
Less: Value of Debt 64,690,000.00
Total value of Equity 26,501,870.68
No of Shares Outstanding 20,440.00
Per share value of value of equity 1,296.57