British American Tobacco – Solid First Half

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  • British American Tobacco (LON:BATS) issued a half-year update today, raising revenue guidance for the year to an underlying rate of over 5%.
  • BATS highlighted solid underlying progress, with accelerated growth in its New Generation Products (NGP) division and a robust performance from traditional tobacco products.
  • Currency movements threaten to outweigh the Group’s progress at the reported level, if rates remain at current levels.
  • The market focused on the underlying progress, lifting the shares by 1% in early trade.

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Q1 2021 hedge fund letters, conferences and more

Commenting on the statement, Steve Clayton, HL Select Fund Manager said:

British American Tobacco Portfolio Is Outperforming

"Currencies threaten to undo BATS’ efforts when the group reports this year, but the underlying progress is encouraging. Traditional tobacco products continue to see volumes shrinking, but BATS’ portfolio is outperforming the trend.

Growth in the NGP division is picking up though, with the numbers of consumers choosing to use BATS’ vaping and tobacco heating products growing by over 10% in the last six months. Their Vype and glo brands are both building share in these new, reduced risk categories.

Tobacco firms are traditionally very strong cash generators and BATS is very much from that mould. The company is rapidly paying down the debts it took on when it acquired the rest of Reynolds American a few years ago, seeing leverage down to 3x by year end.

These are reassuring results. BATS is on course, navigating towards a future driven by its NGP division. The pre-announced dividend means the group is on course to yield over 7.5% this year. With evidence building that BATS’ strategy to shift toward NGPs is working, that yield is hard to ignore."

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