Sparks - British American Tobacco

British American Tobacco’s (BAT’s) H125 trading update provides the welcome news that the US is expected to return to revenue and profit growth in H125 and H225, leading to an upgrade in guidance for FY25 revenue growth of 1–2% versus 1% previously, both at constant currency. All other elements of the guidance remain intact, apart from an increase in the share buyback to £1.1bn from £900m, and an indication that translational fx will represent a headwind of 4% on adjusted profit from operations, versus broadly flat previously. As management guided, growth is expected to be H2 weighted given the phasing of innovations in its New Category products.

The expected growth in the US, BAT’s first year-on-year growth since FY21, follows gains in volume and value share in combustibles against market declines of 9%, as well as strong performance from Velo Plus, which has driven market share gains.

Looking at the product categories individually:

• Group volume and value share in combustibles are both down by 10bp, with the main negatives being Bangladesh and Australia, as expected.
• Velo’s (modern oral) revenue has grown by double digits due to a combination of industry growth and volume share gains.
• glo (heated products) has seen a volume decline in H125 but is expected to report low single-digit growth in H125 and FY25, with an acceleration in H225 due to the phasing of its new product, glo Hilo.
• Vuse’s (vapour) value share in top markets is flat but revenue has declined by the mid-teens due to headwinds from the illicit vapour market in the US and Canada; management expects a better performance in H225, helped by the phasing of new products.