Fitch Upgrades BAT Rating to 'A-' on Strong Cash Flow

Fitch Lifts British American Tobacco Rating to 'A-'

Fitch Ratings has upgraded British American Tobacco plc’s Long-Term Issuer Default Rating to 'A-' from 'BBB+', assigning a Stable Outlook. The decision is based on the company's robust business profile, significant brand diversification, and consistent cash flow generation.

The upgrade highlights confidence in BAT’s financial strategy and its growing portfolio of next-generation products.

Financial Outlook and Projections

Fitch projects BAT will achieve an annual post-dividend free cash flow between GBP 1.8 billion and GBP 2.4 billion from 2026 to 2028. The ratings agency also anticipates the EBITDA margin will improve to 48% by 2028, supported by growth in new product categories.

The company maintains a conservative financial policy, targeting a net leverage of 2.0x to 2.5x from 2026, which underpins the new 'A-' rating.

Market Position and Impact

BAT's rating positions it one notch below Philip Morris International 'A' due to a less diversified revenue stream from smokeless products. However, it stands one notch above Altria Group 'BBB+' because of its wider international market presence compared to Altria's US focus.

This positions BAT favorably among its global peers as it navigates the transition to reduced-risk products.

Summary

The rating upgrade to 'A-' solidifies British American Tobacco's strong credit profile. Investors will monitor the company's ability to sustain growth in its next-generation products and manage its leverage targets effectively to maintain this improved standing.

FAQ

Q: Why did Fitch upgrade BAT's rating?
A: The upgrade was driven by BAT's strong cash flow, brand diversification, growth potential in new products, and a conservative financial policy.

Q: What is BAT's new credit rating?
A: BAT's Long-Term Issuer Default Rating is now 'A-' with a Stable Outlook.

Source: Investing.com