18th Feb 2020 13:49
(Alliance News) - Moody's Investors Service on Tuesday said it expects British American Tobacco PLC to keep lowering debt, but risky assets remain a concern.
Moody's has affirmed BAT's long-term issuer rating at Baa2, keeping the Stable outlook.
"Today's rating action reflects our expectation that BAT's leverage, measured in terms of Moody's adjusted gross debt to earnings before interest, tax, depreciation, and amortisation will improve over the next 12 to 18 months, driven by moderate Ebitda growth and strong free cash flow generation, which we expect to be used to reduce the company's gross debt," said Robert Pozzi, a senior vice-president at Moody's and lead analyst for BAT.
"Any rating upside is currently constrained by the company's limited progress in developing its potentially reduced-risk products portfolio," Pozzi added.
Leverage is "relatively high" at 4.4 times, Moody's continued, as of June 30, but the ratings agency expects this to improve to 4.0 times at the end of 2019 and then towards 3.0 times by 2021.
Moody's said BAT's portfolio of less risky assets remains small. These assets include the new generation of tobacco products such as heated tobacco and e-cigarettes, though it noted health regulators are yet to accept they pose less of a threat to human health than traditional tobacco smoking.
"Any rating upside is currently constrained by the company's limited progress in developing its potentially reduced-risk products portfolio, comprising heat-not-burn, e-vapour, and modern oral tobacco products," said Moody's.
"This business represented a modest 4.5% of BAT's group net revenue in 2018 but is well diversified and, therefore, should be well placed to meet still evolving consumer demand and regulatory requirements."
BAT, the world's largest public tobacco firm, is scheduled to release 2019 financials on February 27.
Shares in London were 0.6% lower on Tuesday afternoon at 3,311.50 pence each. In Johannesburg, they were flat at ZAR650.26.
By George Collard; [email protected]
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