Tobacco giant Imperial Brands said that it expected full year revenue to be broadly flat, with the pandemic driving up demand for cigarettes.
In a trading update, the FTSE 100 firm said the increase in demand had offset weaker duty free sales, which fell due to the restrictions on international travel.
The announcement sent shares up 2.1 per cent in early trading.
“We have experienced some Covid-related changes in consumer behaviour with increased overall demand against our expectations, as consumers appear to have allocated more of their spend to tobacco, as well as some demand shifts between different markets and channels”, it said.
“This has resulted in better than expected volumes, driven by improved volume trends in several key European markets and in the US.”
Imperial, which makes Gauloise and West cigarettes, added that revenue was set to rise one per cent year-on-year, ahead of its half year forecasts.
Hargreaves Lansdown analyst William Ryder said that this “would be a minor achievement considering the weakness in duty free sales.
“Its lower price products seem to be appealing to consumers during the pandemic. The group may be benefiting from its lower exposure to premium products, but management also indicates that smokers have simply been spending more on their habit.”
However, its e-cigarette division will see revenue fall 30 per cent after “disappointing trading”.
Ryder said the development was disappointing, but “not surprising” given that Imperial had pulled back from investing in the division.
“It doesn’t look like vaping will be driving massive growth any time soon”, he added.
Earnings per share are also set to fall six per cent due to additional Covid-19-related manufacturing costs and uncertainties, Imperial said.
The Bristol-headquartered firm added that it would complete the divestment of its Premium Cigars brand on 29 October.
It will use the £1.2bn proceeds from the sale to reduce its debt pile.
New chief executive Stefan Bomhard said: “Imperial has continued to show resilience in adapting to the challenges posed by the Covid-19 pandemic and our priority remains the health, safety and well-being of our people across our operations.”
The firm will announce the date of a capital markets day when it posts its full year results on 17 November.