- Sticks with 2022 guidance
- Growth in non-combustibles
- Faces higher interest charges on its debt
Cigarette manufacturer British American Tobacco (BATS) has run out of puff after a strong run over the last month with investors taking profit after its latest update on trading.
Despite the company behind brands like Dunhill, Kent and Lucky Strike confirming it was on track to hit 2022 guidance the shares slumped 3% to £33.10. Year-to-date the stock is up nearly 20% against a 4% fall for the FTSE All-Share.
BAT was keen to point to a robust showing for its ‘New Category’ business, i.e. vaping and e-cigarettes, which continued to enjoy strong volume, revenue and market share growth.
With new product launches and innovations, the firm has added another 3.2 million consumers within its non-combustible franchise in the nine months to 30 September, up to 21.5 million.
‘We expect a growing contribution across all New Categories, and all regions in 2022. We are confident in delivering our targets of £5 billion revenue, and profitability by 2025,’ it said.
HOW BRITISH AMERICAN TOBACCO HAS DEMONSTRATED PRICING POWER
In the combustibles business, British American was confident its portfolio of brands, which span different price points, would prove resilient across Asia-Pacific, the Middle East, the Americas, Africa and Europe.
In the US, volumes are under pressure thanks to macro-economic factors and a post-Covid ‘normalisation’ of consumption patterns.
In a sign of its pricing power, the company expects to deliver a strong improvement in its adjusted operating margin despite inflationary pressures in its supply chain.
BAT guided for 2% to 4% growth in revenue at constant currency rates for all of 2022 and projects mid-single figure adjusted diluted EPS (earnings per share) growth at constant currencies.
Executive director at research house Edison, Neil Shah, said: ‘Sales volumes of its traditional cigarette products remain resilient in key markets in Asia and Europe, while performance in the US is impacted by post-pandemic attitudes to smoking and inflation driving customers to cheaper products.
‘BAT notes that its sizeable debt position will come with elevated net finance costs due to high interest rates and the strength of the US dollar, but expects strong cash performance for the year.’
