- Tobacco giant raises sales growth forecasts for year to September
- US operations show signs of turnaround
- Company adds £200 million to proposed 2025 buyback
- BAT now the fourteenth FTSE 100 member to target a buyback of at least £1bn this year
- Almost £40 billion of buybacks already announced by FTSE 100 companies for 2025
“Given ongoing regulatory pressure on its target industry, some investors may be surprised to know that shares in British American Tobacco are trading near two-and-a-half-year highs, but the first-half trading update does help to explain why,” says AJ Bell investment director Russ Mould.
“Global cigarette volumes remain under pressure, but the company continues to more than compensate with increased sales from New Category products, price increases and cost cuts, with the result that management still expects to increase profits in the year to 2025 and feels confident enough to increase this year’s share buyback by £200 million to £1.1 billion.
Source: LSEG Refinitiv data
“The group’s organic cash flow remains strong, and it continues to supplement this by selling shares in ITC. The Indian conglomerate has a market capitalisation of £45 billion on the Mumbai exchange and BAT owns a stake of just more than one fifth. Selling shares which sell on more than 25 times earnings for 2026 and using the proceeds to buy back its own stock, which trades on less than ten times, is just a matter of mathematics when it comes to creating shareholder value.
Source: Company accounts
“BAT sold a further £1.1 billion stake in ITC late last month.
“This move underpins the shares’ appeal to income seekers. BAT is paying four quarterly dividends of 60.06p each, with a total value of some £5.3 billion. That is enough for a forward dividend yield of 7.2%. Add in the £1.1 billion share buyback and the total ‘cash yield’ is £6.4 billion, or 8.7% of the company’s £73.2 billion stock market capitalisation.
Source: Company accounts
“Investors who run strict environmental, social and governance (ESG) screens will remain unmoved. They will continue to steadfastly avoid the stock, partly due to their principles and perhaps partly in the view that regulatory risk is never far away, as evidenced by an $8 billion fine for BAT from the Canadian authorities in 2024 which punctured the company’s stated profits and cash flow.
“ESG-oriented investors will doubtless be pleased to see how global cigarette volumes continue to decline – BAT expects an industry-wide drop of 2% in the twelve months to September, although management’s strategy is to leverage brands such as Kent, Pall Mall, Dunhill and Lucky Strike to take market share and raise prices even as the company does so.
“Sales growth in New Categories has slowed in the first half of this fiscal year, to a low-single-digit percentage rate, thanks primarily to illicit vapour trade in the USA and Canada, but chief executive Tadeu Marroco still expects double-digit percentage sales growth from this segment in the year overall, helped by market share gains and new product launches.
Source: Company accounts
“The net result is an increased buy back, to £1.1 billion from the prior plan of £900 million. That makes BAT the fourteenth member of the FTSE 100 to announce a buyback worth at least £1 billion this year and a major contributor to the £39.8 billion in such schemes announced in this year to date by constituents of the UK’s leading benchmark index.”
Source: Company accounts. *To date.
