Should we invest in BAT ?
Is BAT a good investment choice ?
Current price of BAT is around MYR 8.4. It is not easy to answer if BAT is undervalued. I would consider BAT to be in a staple industry and a simple comparison with another with similiar financial matrix can help me sort out our thoughts.
What is selling point of investing in BAT ? I would say it is because high yield, reasonable PE, Staple industry.
BAT Dividend Yield 7%, PE 12. I didn’t bother to check but I doubt BAT has any valuable landbanks. In the case of BAT, I will take Maybank for comparison.
Maybank Dividend Yield 6%, PE 12.
At current state, I would equate investing in BAT to be same as investing in Maybank. Now, if we are in for the long term, we got to be careful with long trend. From 2016 to 2023, Maybank revenue is having an annual compounding growth of 5.5%. 5.5% is nothing to shout about but definitely better than annual declining rate of 7% from BAT.
A simple extrapolation will show us that by 2030, if both companies are still maintaining their respective momentum, Maybank’s revenue, profit and EPS would probably grow by 43%. By then Maybank would probably be handling out Dividend of 85 cent, giving a Dividend Yield of 9%.
If BAT were to maintain the same momentum of decline of past 6 years, both EPS and Dividend would probably decline to 40-45 cent. By then , the Dividend Yield would be around 5%. This has not taken into consideration any potential policy surprises from Government.
I still cannot conclude if BAT is a good investment choice. However, Maybank will be a better choice.
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Investing since 1998.
Prefer to invest in stock with
1). Net cash > 50% market cap
2). PE of 10 or below
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sentosa island : It's unlikely that this stock will rise