British American Tobacco ups guidance on US return to growth
Pall Mall and Lucky Strike owner British American Tobacco (BAT) has said its American business has returned to growth, driven by smokeless products.
In a trading update, the company said its combustible products – cigarettes and cigars – are expected to return to growth in the first half of the year, while its nicotine pouches Velo Plus are expected to see triple-digit revenue growth in the US.
The company has gained market share in the tobacco market in the US, it said, driven by Natural American Spirit and Lucky Strike.
BAT increased its expected revenue growth for the full year to one to two per cent, up from one per cent, despite an expected two per cent drop in global tobacco industry volumes.
The company added that it expects new product revenue growth in the low-single digits in the first half of the year, accelerating to mid-single digits for the full year.
Despite the strong performance of Velo Plus, new product revenue growth has been impacted by “illicit vapour products” in the US and Canada, with US legal industry volume down mid-teens in the year to date, BAT said.
“While there is more to do, I am encouraged by the progress we are making through our Quality Growth focus, and prioritising investment to the largest profit pools,” chief executive Tadeu Marroco said.
“I am confident that the investments we have made and the actions we are taking will drive a return to our mid-term algorithm in 2026.
“I am pleased with our progress in increasing financial flexibility driven by continued strong operating cash conversion and the completion of a partial monetisation of our stake in ITC.”
Last week, BAT confirmed it was evaluating the potential sale of its stake in ITC, which makes tobacco products, aligning with its strategic focus on smokeless products.
Panmure Liberum analysts rated the stock a ‘Buy’, with a target price of 4400p – up from 3322p on June 3.
“BAT’s statement is its usual smorgasbord but boils down to “a bit more revenue, same profit growth, worse [currency headwinds],” analysts said.
“There should be a modicum of greater confidence that recent troubles are fading into the rearview mirror,” analysts added.