Sparks - British American Tobacco

British American Tobacco’s (BAT’s) H125 results are slightly ahead of management’s expectations and, pleasingly, guidance for FY25 revenue growth has increased again, albeit with no accompanying increase in profit guidance. At constant currency, revenue increased by 1.8%, adjusted profit from operations adjusted for Canada grew by 1.9%, and adjusted diluted EPS adjusted for Canada increased by 1.7%. Reported growth rates were negatively affected by fx, with reported revenue declining by 2.2% but profit from operations increasing by 19.1%.

BAT’s H125 trading update at the start of June had already provided good insight to the performance of the categories and noted the return to revenue and profit growth in the US for the first time since 2022. Smokeless products now represent 18.2% of revenue, an increase of 70bps versus FY24.

The majority of the company’s guidance for FY25 is maintained. However, there are two changes. First, there is a further increase in management’s guidance for constant currency revenue growth to the top end of the 1–2% range. The revenue guidance was updated to 1–2% at the H125 trading update from 1% growth at the time of the FY24 results. Second, the expected transactional fx headwind impact on adjusted profit from operations has been slightly reduced to 1–1.5% from the 1.5% expected at the H125 trading update and FY24 results.

BAT is targeting high operating cash flow conversion, which will help to deleverage the balance sheet, grow the dividend in sterling terms and fund the share buyback.