Shares in cigarette and vape maker British American Tobacco (BATS) gained 1.6% to £28.18 after the firm raised its forecasts for full year revenue growth and earnings thanks to improved sales of new products.
The company now expects constant currency sales to grow by more than 5%, ahead of its previous guidance of a 3% to 5% increase, and sees similar mid-single digit growth in earnings per share.
RETURN TO GROWTH
As well as strong volumes and pricing in its traditional tobacco products, the firm is experiencing accelerating growth in sales of its non-combustible products, with customer numbers rising to 14.9 million in the first quarter.
Chief executive Jack Bowles commented: ‘We are accelerating our transformation with increased investment capitalising on our growing momentum in the new categories, and a record quarter for consumer acquisition. This, together with our strong business performance, is reflected in our upgraded group revenue growth guidance of above 5% for 2021.’
BAT’s Vuse and Vype brands have increased their value share in the top five global markets with Vuse claiming a 31.4% category value share in the first four months of the year, up almost 6% on 2020. Vuse also leads the category in 16 US states with a market share of roughly 30%.
‘We expect 2021 to be a pivotal year for the business, with accelerating new category revenue growth, a clear pathway to new category profitability by 2025, and leverage reducing to c.3x by year end,’ added Bowles.
SPARKING INTEREST
Long-suffering shareholders in BAT will be hoping that attitudes towards the stock change after today’s update. The shares are still some 20% below their pre-pandemic level and almost 50% below their 2017 high.
‘A bit like the oil industry, tobacco companies have been kicked into the corner and ignored by a large chunk of the market in the belief their core product categories would fade into oblivion and the transition to a new way of life would not be easy’, says AJ Bell investment director Russ Mould.
‘Perhaps these critics were too harsh. Oil has bounced back in price and tobacco companies are enjoying a pick-up in earnings. Of note, British American Tobacco has upgraded its earnings guidance after saying smokers continue to switch to less harmful alternatives. The company will be hoping that customers stay loyal once it has hooked them in’, adds Mould.
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