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Could these dirt-cheap FTSE 100 shares be too cheap to miss? Let’s take a look.
British American Tobacco
Tobacco stocks like British American Tobacco (LSE:BATS) are famed for their robust dividends. The company’s highly addictive products provide a reliable flow of cash over time typically distributed through a generous passive income.
For 2025, this particular Footsie operator’s dividend yield is 6.4%.
However, cigarette manufacturers face strict regulatory restrictions that have pushed their valuations through the floor. British American Tobacco shares now trade on a forward price-to-earnings (P/E) ratio of 11.2 times.
Historically, Big Tobacco company multiples would sit in the mid-to-high teens.
Widescale rules on the sale, marketing, and usage of their products have hammered their volumes (British American’s own stick sales dropped 5.2% in 2024). Legislators are showing no signs of cooling their attack on tobacco, either. And, regulators are taking greater interest in new nicotine technologies like BATS’ Vuse vaping sticks on growing concerns over their addictive qualities and health implications.
Another danger is the rapid growth of illegal vapour products, and especially in its key US market. This in large part prompted British American to abandon its revenue target of £5bn for its new categories by 2025.
All this being said, the company has shown remarkable resilience despite these challenges. Stick volumes are holding up better than the broader industry. And pricing remains robust, thanks to heavyweight labels like Lucky Strike and Newport.
These prompted British American to raise annual sales growth forecasts, to 1%-2%, and propelled its share price to seven-year peaks.
Yet, I fear this resurgence in investor confidence could prove temporary given those enormous market challenges. It’s why I’d rather target other cheap UK shares.
M&G
M&G (LSE:MNG) is another FTSE 100 share facing significant threats. In fact, the highly cyclical nature of its operations — selling discretionary savings and investment products and services — may leave it more vulnerable in the near term than tobacco manufacturers.
It also has to paddle extremely hard to thrive in an intensely competitive marketplace. Legal & General, Aviva, and Aberdeen are some of many rivals in the UK alone that endanger its top line and operating margins.
But M&G is no minnow, and has significant brand power and seriously deep pockets. Its Solvency II capital ratio was 223% as of December, up 200 basis points year on year.
This gives it significant opportunities to raise earnings, as rising awareness of financial planning and a steadily ageing global population supercharge market growth.
Analysts at Global Market Insights think the asset management market — a sector from which M&G derives the lion’s share of earnings — will grow at a stunning annualised rate of 29.9% between now and 2034.
Like British American Tobacco, M&G’s share price has also rocketed in recent months. But I believe strength here looks far more sustainable. And what’s more, the financial services giant still offers excellent all-round value.
Its forward P/E ratio is 10.4 times, and its dividend yield is 8%, more than double the FTSE 100 average. I think it’s one of the best value UK large-cap shares to consider right now.
