Sales growth is not smoke and mirrors

BRITISH American Tobacco is on course to post 3 per cent sales growth to £26.5billion as it counters falling sales by hiking prices and market share.

Shares in the FTSE 100 listed tobacco giant, which posts its firstquarter trading update on Thursday, have climbed 30 per cent this year – close to a three-and-a-half-year high.

Tobacco consumption is “inelastic” as smokers continue to buy cigarettes, making the sector a hedge against inflation, said AJ Bell financial analyst Danni Hewson. “Firms are using the price rises to offset the gradual global decline in cigarette stick volumes.”

BAT, which owns the Kent, Dunhill, Pall Mall and Lucky Strike brands, is also using its might to take share from smaller rivals, he added.

Thursday’s results will present the latest step in the transformation plan outlined by chief executive Jack

Bowles when he took the helm in 2019. However, sales will take a hit as the group pulled out of Russia in March, following its invasion of Ukraine – the two countries represented around 3 per cent of total group sales.

Earnings per share are nonetheless on course to increase by 9 per cent to 323p, up from 296p a year ago.

Hewson said BAT is targeting 90 per cent operating cashflow conversion, which should help the group reward investors by maintaining its dividend and ongoing £2billion share buyback.

The stock currently yields 6.1 per cent and analysts anticipate dividends per share of 217.8p in 2022, up from 215.6p in 2021, Hewson said.

Its e-cigarette products such asvuse and Glo added 4.8million customers last year to 18.3 million in total.