British American Tobacco shares drop in tough consumer environment
British American Tobacco has maintained its outlook for profit and sales next year as it doubled down on a pledge to become a “smokeless business” by 2035.
Shares, however, fell more than nine per cent in early trades.
“Consumer companies are stuck in somewhat of a difficult environment just now,” Chris Beckett, head of equity research at Quilter Cheviot, said.
“Consumers simply aren’t spending as they were in the aftermath of the pandemic, and an uncertain economic environment has caused a retrenchment in consumer behaviour, with discretionary items the first to go.”
The owner of Pall Mall and Lucky Strike expects adjusted profit from its operations to grow between four to six per cent next year, alongside revenue growth of three to five per cent in 2026.
It came as British American Tobacco reported annual profit from operations of £2.7bn, up from a loss of £15.8bn last year and despite a provision of £6.2bn related to a major litigation settlement in Canada.
Revenue declined five per cent to £25.9bn as BAT forecast a mild slowdown in global tobacco industry volumes this year.
Dividends per share rose two per cent to 240.24p.
A ‘smokeless world’
Investors in the firm have slowly bought into its shift away from traditional tobacco products to vaping devices.
Smokeless products now account for 17.5 per cent of the group’s revenue after it added 3.6m consumers to its tally last year.
But Beckett said the growth in new categories was “concerning”.
“Sales of transition type products, vapes, e-cigarettes etc., are good but not great and definitely behind some of its peers. The transition is happening for BAT but it needs to happen quicker in order for the company to benefit,” he added.
Shares are up just over 40 per cent over the last 12 months and boss Tadeu Marroco on Wednesday reaffirmed his commitment to the transition.
“We are committed to Building a Smokeless World and becoming a predominantly Smokeless business by 2035,” he said.
“I am confident that we have the right strategy, science, innovation, breadth of capabilities and people to achieve this ambition and deliver long-term sustainable value for all our stakeholders.
He added: “Our performance has accelerated in the second half, driven by the phasing of New Categories innovation and the benefits of investment in US commercial actions, together with the unwind of related wholesaler inventory movements.”
Panmure Liberum analysts rated the stock a ‘Buy’: “The shares are still “cheap” but BAT is still struggling to redefine itself and even the promise of future growth is no more than Imperial Brands is already delivering. Between the two it remains an easy choice in Imperial’s favour.”