ii view: high yielder BAT pursues mid-term growth targets

Second-half trading update to 31 December

• Expects full-year revenues to grow by 2%
• Expects full-year adjusted operating profit to grow by 2%

Guidance:

• Continues to expect medium-term revenue growth of 3% to 5%
• Continues to expect medium-term adjusted operating profit growth of 4% to 6%
• Now expects 2026 revenue and profit growth at the lower end of the medium-term ranges

Chief Executive Tadeu Marroco said:

"Full-year delivery remains on track. I am particularly pleased with our momentum in the U.S., the world's largest nicotine value pool. Strengthened combustibles performance and enhanced commercial execution reinforce our future confidence. 

“Recent Vuse volume and revenue improvement in the U.S. is encouraging, although the Vapour category continues to be impacted by illicit proliferation. Over time, we believe Vuse is well positioned to benefit from stronger Federal and State level enforcement.”

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ii round-up:

Started in 1902, British American Tobacco (LSE:BATS) today sells both traditional or combustible tobacco as well as so called New Category products such as vapes. 

Combustible brands include Dunhill, Rothmans and Lucky Strike, with Camel and Newport each specific to the USA.

New category brands include Vuse vapes, Glo heated tobacco products and Velo nicotine pouches.

For a round-up of this latest trading update announced on 9 December, please click here. 

ii view:

Headquartered in London and a constituent of the FTSE 100 index, BAT competes against rivals such as Philip Morris International Inc (NYSE:PM) and Altria Group Inc (NYSE:MO). Combustible products continue to account for most revenues, with New Category, or smokeless products making up 17.5% of overall revenues in 2024. Geographically, the US generated most sales last year at 44%, followed by the Americas and Europe at 36%, and the rest of the world the balance of 20%.  

For investors, ethical concerns regarding consumer health issues for both traditional and new category products leave the industry untouchable for many. Regulatory headwinds in Australia and planned exits from Mozambique and Cuba are expected to leave growth in revenues and profits over the full year 2026 at the lower end of management’s mid-term targets. A forecast one-year price/earnings (PE) ratio above the three- and 10-year averages may suggest the shares are not obviously cheap, while potentially tighter government regulation globally in relation to both traditional and new category products is not to be forgotten. 

• The FTSE 100 dividends worth billions due in January 2026
• 20 highest-yielding FTSE 100 shares in 2025

More favourably, a push regarding new category innovation and products is feeding into management’s target to raise smokeless revenues to 50% of the group’s total by 2035. Both diversity of brands and geographical regions exist. A focus on reducing group net debt is ongoing, while the generation of significant cashflows continues to underpin shareholder returns, including a newly announced £1.3 billion share buyback programme for 2026 compared with £1.1 billion last year. 

• ii view: Imperial Brands optimistic under new CEO
• The shares attracting fund managers at start of 2026

For now, and while the shares remain off-limits for many on ethical grounds, a forecast dividend yield of around 6% should keep income investors interested. 

Positives:

• Pushing innovation for new category products
• £1.3 billion 2026 share buyback programme

Negatives

• Uncertain economic outlook
• Currency movements can impact

The average rating of stock market analysts:

Buy