- Group revenue at lower end of range
- Shares down 31% year-to-date
- Remains committed to 'building a smokeless world'
Shares in British American Tobacco (BATS) fell over 8% to £22.66 as the global tobacco firm made no change to full year 2023 guidance and earnings per share delivery in its latest trading update.
Group organic revenue growth is now expected to be at the low end of the 3%-5% range as the global tobacco firm blamed ‘macro-economic pressures in the US impacting combustibles performance.’
Chris Beckett, head of equity research at Quilter Cheviot said: ‘BAT's latest financial update was largely in line with expectations but was not the catalyst needed to begin to reverse the negative sentiment to the company and its very low valuation.
‘Management is expecting sales growth of around 3%, with debt in the business being reduced. As a result, share buybacks will be considered should the deleveraging of the business continue as planned.
‘In 2024 management expect low single digit revenue and profit growth. For a stock that looks cheap and is offering a 10% dividend yield this is not awful, but it will not change the narrative on the stock. The lack of a clear route to a buyback will also weigh. We continue to believe that this valuation is too low particularly compared to Philip Morris, its closest competitor.’
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MIXED PERFORMANCE IN NEW CATEGORIES
British American Tobacco said it remained committed to ‘building a smokeless world’ with 50% of its revenue from non-combustibles by 2035.
However, the performance of the firm’s heated products has been mixed so far this year.
Glo’s performance has been disappointing due to slower industry growth, increased poly-usage and heightened competitive activity in Japan and Italy.
Glo Hyper Air is performing in line with expectations and the global tobacco firm launched a new product – veo in October- a range of non-tobacco consumables in 10 markets in Europe.
Vapour and Vuse market share are up 100 bps reaching 36.8% in key markets. The tobacco firm said these products are ‘achieving strong revenue growth, driven by an increased number of consumers with Vuse Go now available in 59 markets.’
Russ Mould investment director at AJ Bell said: ‘British American Tobacco is going through a significant period of change as it targets half of its revenue to come from non-combustibles by 2035 and struggles with difficult US market conditions.
‘Smokers continue to switch to next generation products including vaping and that has prompted British American Tobacco to take a long-term view about the value of its assets in the combustibles category. Reassessing their economic value has led to a £25 billion impairment charge and the decision to accelerate investment in the business to make it fit for the shift in consumer preferences.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Sabuhi Gard) and the editor (Martin Gamble) own shares in AJ Bell.
