ii view: income play BAT predicts challenges in 2025

Full-year results to 31 December

• Revenue down 5.2% to £25.9 billion
• Adjusted revenue up 1.3% 
• Adjusted earnings up 3.6% to 381.9p per share
• Total dividend for 2024 of 240.24p per share, up 2% and payable in 4 equal instalments 
• Share buyback of £900 million over 2025
• Net debt down 10% to $31.3 billion

Guidance:

• Expects global tobacco industry volume to fall 2%
• Expects currency adjusted 2025 revenues up 1% - below medium-term target of 3-5%

Chief executive Tadeu Marroco said:

"We are committed to Building a Smokeless World and becoming a predominantly Smokeless business by 2035. I am confident that we have the right strategy, science, innovation, breadth of capabilities and people to achieve this ambition and deliver long-term sustainable value for all our stakeholders.”

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ii round-up:

Founded in 1902, British American Tobacco (LSE:BATS) today employs over 48,000 people and has a stock market value in the region of £65 billion. 

The group’s traditional cigarette, or combustible brands include Rothmans, Dunhill, and Lucky Strike. Both Camel and Newport are US specific brands. 

Its collection of non-combustible, or new category products includes vapour product Vuse, tobacco heating brand Glo and modern oral brand Velo. 

For a round-up of these latest results announced on 13 February, please click here. 

ii view:

A constituent of the FTSE 100, the company competes against global rivals such as Philip Morris International Inc (NYSE:PM) and Altria Group Inc (NYSE:MO). Operating across more than 70 manufacturing plants, the US accounts for its biggest slug of profits at around 53%, followed by the Americas & Europe at almost 30% and Asia Pacific, the Middle East & Africa the balance. 

BAT’s strategy includes growing its new category, or smokeless revenue to 50% by 2035, along with driving a step change in its new category innovation. Smokeless products generated 17.5% of overall revenue in  2024, about 1% up on 2023 as the number of users rose by 3.6 million to 29.1 million. 

For investors, ethical concerns regarding consumer health issues for both traditional and new category products leave the industry untouchable for many investors. The initiative by Canada to make tobacco manufacturers pay directly for healthcare costs could be repeated elsewhere, and may therefore impede future share buybacks. Moves to potentially ban new category products in countries such as Mexico should not be overlooked. Tax rises and new laws in Bangladesh and Australia are expect to dampen performance, while cigarette volumes in its biggest market - the US - continue to fall. 

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To the upside, progress of management’s ambition to become a predominantly smokeless business by 2035 is being made. Both diversity of brands and geographical regions exists. Group net debt is down 10% versus a year ago, while the company continues to generate significant cashflows, underpinning shareholder returns. 

In all, and while the shares remain uninvestable for many on ethical grounds, a forecast dividend yield of around 8% will likely mean the shares remain of interest to income investors. 

Positives:

• Pushing innovation for new category products
• Attractive dividend yield (not guaranteed)

Negatives

• Uncertain economic outlook
• Currency movements can impact

The average rating of stock market analysts:

Buy