Interactive Investor

ii view: income play BAT fine tunes strategy under new CEO

23rd June 2023 12:05

by Keith Bowman from interactive investor

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This FTSE 100 tobacco company has lost a fifth of its value year-to-date and offers an attractive dividend yield. Buy, sell, or hold?

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First-half trading update to 26 June

  • Non-combustible or New Category customers up 900,000 during Q1

Full-year guidance:

  • Continues to expect currency adjusted organic revenue growth of between 3% to 5%
  • Continues to expect mid-single digit currency adjusted Earnings Per Share (EPS) growth 

New chief executive Tadeu Marroco said:

“We have reached a point in our transformation where sharper execution and greater emphasis on fewer, bigger priorities that deliver meaningful returns is required. We will use our market archetype model, which identifies different stages of New Category maturity to guide us, ensuring our priorities deliver on our strategy and are well articulated with clear business outcomes defined.”

“2023 is going to be complex and exciting in equal measure. BAT has a wonderful heritage. I am committed to building a new, modern BAT – one that is agile and progressive, inclusive and collaborative.”

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ii round-up:

Started in 1902, British American Tobacco (LSE:BATS) today employs over 50,000 people, generating sales over its last full 2022 financial year of more than £27 billion. 

Its traditional cigarette, or combustible brands include Rothmans, Dunhill, Kent, and Pall Mall. Both Camel and Newport are US specific brands. 

Its collection of non-combustible, or New Category products includes alternatives such as vapour products, tobacco heating items, and modern oral nicotine pouches. New category brand names include Vuse, Velo, and Glo. New category sales rose 37% over the FY 2022 compared to 2021, reaching £2.9 billion.

For a round-up of this latest trading update announced on 6 June, 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 in more than 170 markets. Group strategy includes a commitment to reducing the health impact of its business through a multi-category approach. It continues to target £5 billion of new category revenues by 2025 along with 50 million consumers of non-combustible products by 2030. It now expects its new category business to prove profitable by 2024, a year earlier than its original plan. The US generates its biggest slug of sales at around 45%, followed by Europe at 22%. 

For investors, and with most of its sales still coming from traditional tobacco products, ethical issues continue to make the industry untouchable for some investors. Concerns regarding health risks from new category products have also seen governments tightening their regulation. Global tobacco volumes are expected to retreat over the full year, combustible sales in the US continue to lag management hopes, while net debt of over £40 billion as of the 2022 year-end may potentially reduce shareholder returns as debt is reduced. 

On the upside, a new chief executive is fine turning company strategy and may inject renewed vigour. New category sales are growing with consumer numbers increasing, an ability to raise product prices will help counter increased costs, while its significant generation of cash provides financial flexible allowing it to either invest in the business, pay down debt, return cash to shareholders or pursue a combination.   

On balance, and while the shares remain uninvestable for some investors on ethical grounds, a forecast dividend yield of over 9% is likely to make BAT attractive to many 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:


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