Firm stubbed out issues to cash in on pivot to vape sales
INVESTORS will be hoping Lucky Strike maker British American Tobacco (BAT) has stubbed out historic misconduct issues and is cashing in on its pivot to vapes and e-cigarettes.
The FTSE 100-listed giant will give an update on its progress with a new boss at the helm when it unveils its trading update tomorrow (Tuesday).
The world’s second-biggest tobacco firm promoted its finance director to the top job as chief executive last month, after a 30-year career at the business.
Tadeu Marroco took over amid a push towards new vaping and tobacco alternatives, which account for about £3bn of its revenues, and away from traditional tobacco products.
“As it becomes harder to squeeze growth from the traditional tobacco portfolio, focus on the performance of the new categories division will continue to heat up”, Matt Britzman, equity analyst for Hargreaves Lansdown, said.
“Profitability in this area is the next major milestone, now expected in 2024, earlier than initially expected.”
Sales of so-called next generation products are expected to grow by nearly a quarter in 2023 to more than £3.5bn, according to analysts at AJ Bell.
Thousands of staff could lose their job as it pivots toward new technologies and trims down the old side of the business, BAT said earlier this year. It follows the firm reporting an annual adjusted operating profit of £12.4 billion in February.
However, BAT will need to convince shareholders that it is in good shape after being forced to pay a fine of 635 million dollars (£512m) to US authorities over historic sanction breaches relating to its business activities in North Korea between 2007 and 2017.
Former boss Jack Bowles apologised for the misconduct in April, stressing it was now a more “responsible and sustainable” business. But question marks remain over BAT’s position in Russia after difficulty offloading the business and exiting the country.
The Dunhill and Lucky Strike brand had said it wanted to transfer the business and leave Russia this year, but Mr Bowles said there was no “crystal ball” to confirm whether it would happen. Investors will be looking for clarity over the situation, with a slew of big businesses managing to leave their Russian operations behind following the war in Ukraine.
Meanwhile, BAT’s share price has plunged by nearly a quarter over the year-to-date.
“Ongoing regulatory pushback against smoking and indeed menthol and flavoured alternatives, as well as the company’s ability to create new income streams with its next generation products, remain longstanding issues that may be weighing on sentiment”, Russ Mould, AJ Bell’s investment director said.
Investors will also be looking for an update on whether BAT will restart share buy-backs in a move to return cash to shareholders.