Lucky Strike maker British American Tobacco (BAT) has seen dramatic revenue growth in its ‘new categories’ division thanks to its acceleration of investment in ever-more popular cigarette alternatives.
Its revenue from vaping and tobacco-free products hit £1.6bn, a 29 per cent increase from the first half of 2022, and BAT said it is making “good progress” towards its target £5bn of revenue in the next two years.
British American Tobacco shares spiked 2.3 per cent this morning after it reported its half-year profits were at £5.94bn.
BAT boss Tadeu Marroco said there was a “renewed sense of energy across the organisation” in the first half of the year.
During the half year the group welcomed 1.5m new customers via sales of tobacco free goods such as vapes – with value share in its e-cigarette brand Vuse up 240 bps, reaching over 38 per cent.
However, sales in its combustible products such as traditional cigarettes were still down in its US market, although BAT said this was offset by the Americas, European, Asia-Pacific, Middle Eastern and African markets.
The US market’s struggle with cigarettes continues from the previous quarter, as consumers increasingly turn away from smoking.
For the six months to 30 June 2023, US dragged down cigarette volume by 12.4 per cent, compared to overall 5.7 per cent.
BAT’s strong vape sales come amidst a global crackdown on the product, with many fearing that it could create health implications and lead young teenagers to get hooked on nicotine.
Marocco said: “While it’s encouraging to see continued good performance in Vapour and Modern Oral, we recognise more work is required in heated tobacco.
“I remain confident that New Categories will deliver a positive contribution in 2024. However, we do not expect contribution growth to be linear, as levels of investment will align with the phasing of our big innovation platforms.”
Recently, BAT underwent a senior-level management reshuffle following the departure of former Chief Executive Jack Bowles, with Tadeu Marroco taking the reins, having been the firm’s former finance director.
Commenting on the results, Chris Beckett, head of equity research at Quilter Cheviot, said BAT’s performance was “solid, albeit unspectacular” and their £5bn sales ambition “appears plausible”.
“Their venture into alternative products like vaping and heated tobacco is seeing gradual improvement, particularly vaping which is performing better. However, with a 18 per cent market share, BAT is somewhat trailing behind Philip Morris in the heated tobacco market,” Beckett said.
He added: “Currently, BAT’s stock is valued at less than 7 times earnings, offering a 9 per cent yield. These figures imply that even moderate performance can drive stock increases, making it an attractive proposition in a sector currently out of favour.”