On Monday, Jefferies maintained a Buy rating with a GBP32.00 price target on British American Tobacco (LON:BATS:LN) (NYSE: NYSE:BTI). Reports indicate that the company is planning to sell a portion of its stake in ITC, valued between $2 billion and $3 billion, through block trades potentially starting this week. British American Tobacco is looking to reduce its current 29% holding but intends to keep at least a 25% stake to retain board seats and veto rights.
The sale is expected to generate around $1.9 billion in gross proceeds if a 4% stake is sold. This move may lead to an earlier start of a share buyback program, potentially by mid-year, rather than the end of 2024 as previously anticipated. The strategic decision to not fall below a 25% stake is linked to the company's position in the Indian market, where it has advantages over competitors due to earlier investments made before restrictions on foreign direct investment in tobacco were introduced.
British American Tobacco's stake in ITC allows it to maintain influence over the company's strategic direction, particularly in the tobacco and potential reduced risk product (RRP) markets. India represents a significant market for both tobacco and potentially for RRPs in the future, including inhalables and oral nicotine products. Although RRPs are not currently permitted in India, there is optimism that regulations may change, allowing British American Tobacco to capitalize on its strategic positioning within ITC.
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