-Group maintains guidance
-Management anticipate decline in tobacco volumes
-Vuse dominates vaping category
Shares in tobacco leviathan British American Tobacco (BATS) drifted 1% lower to £35.26 despite reiterating guidance in a first half trading update.
The muted response is in part due to the strong returns this year with the shares up by 31% over the last six months.
Moreover management have predicted a 3% contraction in tobacco industry volumes as a result of an uncertain outlook in the US, coupled with the impact of Russia’s invasion of Ukraine.
The FTSE 100 tobacco group confirmed full-year constant-currency guidance for revenue growth of between 2% and 4%, and mid-single-digit adjusted diluted earnings-per-share growth, with operating cash conversion of more than 90%.
VUSE BECOMES LEADING GLOBAL BRAND
British American Tobacco has pursued a strategy of discounting the price of devices to get its vaping product in the hands of the consumer. However it is now in a position to increase price.
Recently the group has been taking global value leadership share of the vapour category, under Vuse which is now the number one brand globally.
Vuse has become the leading brand by market share in the US, with total value share of 35.9% an increased of 3.4 percentage points versus full year 2021.
The transition for a manual to an automated production process will further boost the profitability of vapour.
BATS have renegotiated with their major supplier to move from the manual assembly of the cartridge to an automated process.
The group will also benefit from the launch last month of Vuse Go in the UK, the new disposable vaping product. Additional market roll outs are scheduled for the second half.
GUIDANCE CONFIRMED
On the analyst conference call Tadeu Marroco BAT’s finance and transformation director provided a compelling argument for why he has confidence in the group’s guidance.
Marroco believes the group will benefit from a better pricing environment globally and is confident in the group reaching its cost savings target of £1.5 billion by the end of this year. Moreover he anticipates a continued strong performance in non-combustibles.
