3 June 2025
If you are covering BAT’s latest financial update, please find below a comment from Chris Beckett, head of equity research at Quilter Cheviot:
“Ahead of an investor conference BAT has issued a solid trading update, giving it plenty cover when speaking with investors. Revenue guidance was slightly increased but only maintained for profitability. Management believes the company is on track for full year delivery slightly ahead of previous guidance. It now expects revenue growth of 1-2% in constant currencies, up from 1% previously, and adjusted profits to be between 1.5% to 2.5% better.
“The good news is that the US is expected to return to revenue and profit growth in the first half of the year after three negative years. This has predominantly been driven by traditional cigarette performance and strong sales of Velo – its nicotine pouch brand. Illicit vapes has offset some of this growth with the vaping business declining consequently. The company is also seeing excise and regulatory pressure in Australia and Bangladesh which was previously known.
“Leverage within the business is expected to reduce to 2.0 – 2.5x by the end of 2026 helped by the partial sale of ITC, the Indian business, which is also funding this year’s £1.1bn buyback which management describes as ‘sustainable’. It also recommitted to a progressive dividend policy 7% yield. The only negative is increased currency headwinds which will lead to modest headline earnings downgrades. This is likely to be a theme for UK/European businesses with significant US exposure.
“With the stock trading on 9x next year’s expected earnings it remains a good option for investors. Tobacco remains a very cheap, cash generative industry and if BAT can become more reliable then it will do well. Whilst transition to reduced risk products is not as fast at BAT as we would like it comes at less than half the valuation of Philip Morris.”
