Interactive Investor

ii view: income play BAT boosts focus on vapes

Owning brands such as Rothmans and Vuse, shares in this FTSE 100 company fell by almost a third in 2023. We assess prospects.

2nd January 2024 11:38

by Keith Bowman from interactive investor

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Full-year trading and strategy update

  • Group organic revenue now expected to be at the low end of its 3-5% guidance range at constant currency rates
  • Earnings per share expected to prove in line with previous guidance
  • Now committing to 'Building a Smokeless World' with 50% revenue from non-combustibles by 2035
  • Reducing the intangible value of some of its US combustible brands by £25 billion

Chief executive Tadeu Marroco said:

"In 2023 we continue to expect another year of delivery in line with our guidance. I am encouraged by the strong performances of Vuse and Velo, delivering strong volume led revenue growth, and increased profitability. 

“In combustibles, while the U.S. macro-economic environment remains challenging, I am encouraged that our commercial plans are starting to deliver early signs of portfolio recovery.

“I am confident that the choices we are making today will drive our long-term success and deliver sustainable value for all of our stakeholders."

ii round-up:

Founded in 1902, British American Tobacco (LSE:BATS) today employs over 50,000 people, with a stock market value in the region of £51 billion. 

Its traditional cigarette or combustible brands include Rothmans, Dunhill, and Lucky Strike. Both Camel and Newport are US specific brands. 

Its collection of non-combustible or new category products includes vapour product Vuse, tobacco heating brand Glo and modern oral brand Velo. 

For a round-up of this latest trading update announced on 6 December, please click here

ii view:

BAT competes against rivals including Imperial Brands (LSE:IMB), Philip Morris International Inc (NYSE:PM), and Altria Group Inc (NYSE:MO). A constituent of the FTSE 100, it operates across more than 70 manufacturing plants. The US generates its biggest slug of sales at around 45%, followed by Europe at 22% and then Asia and the Middle East at around 16%. BAT’s strategy now includes growing its non-combustible, or new category revenues to 50% by 2035 and up from around 17% in 2022, along with driving a step change in its new category innovation capabilities and speed to market. 

For investors, and given health concerns for both traditional and new category products, ethical issues continue to leave the industry untouchable for many investors. Global combustible tobacco volumes are expected to have fallen around 3% over the full year 2023, and a £25 billion write-down in the value of some combustible brands has been taken. The tough economic backdrop in the US is also affecting demand for traditional cigarettes, while reducing group debt is for now a higher priority than shareholder returns such as share buybacks.  

More favourably, growing sales for lower health risk new category products is now the core management focus, and BAT has a diverse range of brands spread around the globe. New Categories products are expected to broadly breakeven over 2023, two years ahead of management’s target, while BAT's significant cash generation provides financial flexibility that allows it to either invest in the business, pay down debt, return cash to shareholders or pursue a combination of these.   

In all, and while the shares remain out of favour for many investors on ethical grounds, a forecast dividend yield of over 9% is likely to remain of interest to remaining income investors. 


  • Expanding new category vape products sales
  • Attractive dividend yield (not guaranteed)


  • Uncertain economic outlook
  • Currency movements can impact

The average rating of stock market analysts:


These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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