On Tuesday, Citi reaffirmed its Buy rating on British American Tobacco (BATS:LN) (NYSE: NYSE:BTI), maintaining the price target at £27.00. The decision follows the tobacco company's recent announcement of its plans to sell approximately 437 million shares in ITC, which represents about 3.5% of ITC's share capital.
This sale is expected to yield around £1.7 billion at current market prices. After the completion of this transaction, British American Tobacco's stake in ITC will reduce to approximately 25.5%, but the company will retain its voting rights.
The firm also declared its intention to launch a share buyback program that will continue until the end of 2025. For the year 2024, the buyback is set at roughly £700 million. In addition to these developments, British American Tobacco has adjusted its target leverage range, now aiming for 2.0x-2.5x, a shift from the previous 2.5x-3.0x range.
These strategic financial moves come on the heels of the company's February 2024 announcement during the FY23 results, where British American Tobacco indicated it was exploring options for divestment. At that time, the complexity of the sell-down process was acknowledged, leaving some uncertainty in the market.
With the details of the divestment now clarified, the expectation is that the market will respond favorably to the news. The £700 million share buyback planned for 2024, along with additional buybacks slated for 2025, are anticipated to lend technical support to the company's shares in the foreseeable future.
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