- Vaping and e-cigs lift second half
- Shares gain 28% year-to-date
- Shrugs off pressure around regulation
Shares in British American Tobacco (BATS) gained ground, adding 19p or 0.6% to £29.88 as the global tobacco firm said it was on track to deliver for full year 2024 in line with its previous guidance.
STEADY PROGRESS, SUSTAINABLE RETURNS
The company behind brands like Dunhill, Kent, and Lucky Strike said performance for the second half was driven by a further improvement in profitability in its New Categories business, which includes heated products Vuse, glo and Velo and has delivered more than £3 billion of revenue in less than a decade.
The company said Velo and Grizzly Modern Oral products had ‘reinvigorated’ its performance in the US with volume share up to 6.3%.
The FTSE 100 tobacco giant is also expanding its US portfolio with a new competitive Velo Plus product.
The company said it would continue to reward shareholders through strong cash returns including a progressive dividend and sustainable share buyback.
‘We remain committed to returning to our mid-term guidance of 3-5% revenue and mid-single digit adjusted profit from operations growth on an organic constant currency basis by 2026.’
EXPERT VIEWS
Although today's trading update might be slightly underwhelming for investors, it should be ‘seen in context’ say analysts at Panmure Liberum.
‘Expectations for this year were savaged a year ago, but after a number of years of consistent disappointment against its own targets at least now the company has delivered. Underlying growth is promised to improve in 2025E although FX remains a headwind, albeit modest, and there will be an impact if a Canadian settlement is reached.’
Dan Coatsworth, investment analyst at AJ Bell commented: ‘Despite pressures around tighter regulation, healthcare issues moving up the agenda and governments taking steps to stop young people vaping, British American Tobacco continues to grow its sales and profits.
‘Even though tobacco industry sales are slowly declining, it’s only by a small amount and next-generation products such as vaping are filling the gap.
‘Admittedly, growth rates for next generation products haven’t been as strong as some companies would have liked, yet the transition from old to new continues to make progress.
‘Expectations have been readjusted and more investors are warming to the sector again, as evidenced by British American Tobacco’s shares enjoying a good run this year following a miserable period on the stock market.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Sabuhi Gard) and the editor (Ian Conway) own shares in AJ Bell. The editor also owns shares in British American Tobacco.
