Morgan Stanley says British American Tobacco's ability to grow is underappreciated

Indeed, the firm's user base had grown from about 143m in 2017 to approximately 146m by 2019 and might reach roughly 155m by 2030.

"We see a significant opportunity in BAT’s new model, just as the shares and investor interest hit multi-year lows," they said.

Key to their thesis was the firm's shift under chief executive officer, Jack Bowles, from a combustibles business to a nicotine play.

Management's ambition was to have 50m non-combustible users by 2030, up from 11m at the end of 2019, which would more than compensate for the falling number of smokers.

The broker also highlighted the 50:50 split in BAT's volumes between emerging and developed markets, strong management, best-in-class track record for share gains - 200 basis points globally since 2014 - and anticipated stable earnings growth of 4-8% over 2020-25.

Its analysts also argued that the dividend payout was "largely secure" as the company refinanced debt.

Furthermore, the improved position in US next-generation-products should provide a "safety net" in case Washington moves to ban menthols and allow it to capture users migrating to other products.

Indeed, they expected the company's return on invested capital to improve by 250 basis points by 2025.

As well, using Smoore International as a benchmark and then applying a 67% discount due to the lower profitability, BAT's combustibles operations were valued only marginally above those of Imperial Brands.

"So why is it trading at IMB valuations? The key risk to the equity story is clearly the threat to profits if the US bans flavours, but we see insulation as better positioning in NGP helps add subscribers in Europe and the US.

"We see an attractive opportunity to move into the best overall Nicotine portfolio in Europe. We are OW BAT and UW IMB."

Morgan Stanley did nevertheless trim its target price for BAT's shares from 3,380.0p to 3,330.0p.