British American Tobacco's £25 Billion Write-Downs Cast Uncertainty on Future
British American Tobacco (BAT) announced a £25 billion impairment charge related to its US cigarettes business, causing its stock to drop by roughly 8%. The charge is mainly due to the acquisition of Reynolds American in 2017, resulting in a decline in the equity ratio. BAT believes that the present value of US cigarette brands will be zero after 30 years. While the impact on the valuation of BAT stock is difficult to estimate, it is likely to be around -14% to -18%. BAT's stake in ITC Ltd., currently worth around £16 billion, could potentially be sold to reduce leverage. Despite the impairment charge, BAT stock is considered a compelling value opportunity with a high free cash flow yield and a well-covered dividend.