British American Tobacco has raised its guidance for the year after the success of new product launches in key markets like the US and Serbia.
It now expects revenue to grow between 1% and 2%, according to a half-year update, up from 1% at the start of the year.
The company’s share price is currently at a two-year high as market turmoil elsewhere has attracted investors and helped move it on from recent difficulties such as a withdrawal from Russia, a £27bn write-down of its American assets, and an $8bn fine in Canada last year.
Velo, the company’s oral nicotine pouch brand, is driving much of the boost with double-digit revenue growth due to both sector growth and market share gains. BAT highlighted the US, the UK, Scandinavia and Poland as high-performing markets.
BAT also recently launched a new ‘Glo Hilo’ product, using Serbia as a test market. “We are encouraged by the early performance…and continue to gain insights and critical learnings ahead of its phased rollout in key markets from H2 onwards,” the company said.
Russ Mould, investment director at AJ Bell said “on the face of it, British American Tobacco’s trading update contains the type of information that investors might celebrate.”
“A problem area (the US) looks to be improving, revenue is ahead of guidance, and it continues to generate lots of cash. Unfortunately for investors, so much good news has already been priced into the shares that the update failed to move the dial.”
Across ‘new categories’ – including vapour, tobacco heating products and oral pouches – BAT is seeing low-single digit revenue growth. It said the impact of illegal vapes in the US and Canada was partly offsetting Velo’s performance.
Despite the growth in new products, cigarettes still make up around 80% of BAT’s total revenue and were worth £9.9bn in the first half of the year.
While industry volumes are down 9% in the year to date, BAT said, the company has been pushing through price increases on brands like Dunhill, Pall Mall and Lucky Strike to compensate for lower sales.
As a result, its cigarette sales in the US are expected to return to revenue and profit growth, “driven by successful execution of commercial actions”.
CEO Tadeu Marroco said he “remains committed to delivering sustainable value for our shareholders through strong cash returns, including our progressive dividend and a sustainable share buy-back programme”.
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