CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please consider our Risk Disclosure Notice and ensure that you fully understand the risks involved. CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please consider our Risk Disclosure Notice and ensure that you fully understand the risks involved.

British American Tobacco shares boosted by share buyback programme

British American Tobacco has launched a share buyback programme and is seeing growth from vaping. Are the shares worth buying?

British American Tobacco British American Tobacco PLC (LSE) has unveiled a bumper share buyback programme worth £2bn. Like a number of other large UK companies, including Shell and Unilever, the tobacco company is returning cash to shareholders by buying up its own shares, thereby boosting the share price by reducing the supply.

Shares in BAT rose 3% to 3368.5p on Friday. Despite the benefits for investors, when companies return large amounts of cash to shareholders, analysts sometimes complain that this is a sign that they have run out of ideas. “You worry that buybacks are just a screen for a lack of strategy,” said Neil Wilson, an analyst at “Investors want to see more of a deliberate attempt to unlock value.”

However, tobacco companies typically generate lots of cash and BAT is seeing growth from its non-combustible products or e-cigarettes.

ESG concerns over tobacco investments

Tobacco is obviously an unpopular sector with ESG (Environmental Social Governance) investors, meaning some funds are unable to buy the shares. Yet the company now claims it is now putting the environment and sustainability front and centre of its business.

“Putting ESG at the heart of our strategy and corporate purpose is delivering sustainable growth, encouraging more consumers to transition to reduced risk products and reducing the health impact of our business,” said chief executive Jack Bowles in BAT’s full-year results statement last week. “We are also on track to achieve our other ESG targets, including carbon neutrality from our operations by 2030.”

British American Tobacco has even trademarked the phrase ‘A Better Tomorrow’ in relation to its non-combustible or vaping products.

Is the tobacco sector lighting up again?

While the light may be going out of the cigarettes market, the company is seeing growth in its new product categories. BATs saw 50% growth in its non-combustible - or vaping - market last year and expects the category to bring in £5bn of annual sales by 2025. The company reached 18.3m e-cigarettes customers in 2021, an increase of 4.8m, and aims to have 30m customers by 2030. Adjusted revenues in the category rose 50% last year to £2bn, however the business remains loss-making, with losses down 9% to £100m for the full-year.

Total adjusted revenues increased by 6.9% to £25.7bn, with 4% revenue growth in tobacco sales, driven by a strong performance in emerging markets. Global tobacco industry volumes are expected to decline by 2.5% in 2022. However, the company expects to generate £40bn of free cash flow before dividends over the next five years, with cash conversion – the rate at which profits are converted into cash – in excess of 90%.

Are BAT’s shares enjoying a revival?

Despite BAT’s hopes, some analysts doubt that tobacco shares will ever make it into socially responsible investment portfolios. “Tobacco - even without combustion - [is] still too difficult to explain to fund investors,” Panmure analyst Rae Maile said in a recent note.

Meanwhile, US regulators have been cracking down on vaping due to concerns over lung disease, although the NHS advises that e-cigarettes are less harmful and that using them can help smokers quit.

Still, the shares are enjoying something of a comeback - up 25% this year to 3368.5p, and up 33% from 2530p in August. Besides the company’s success in vaping, the rise is also most likely due to the fact tobacco shares are a good hedge against inflation. Their customers are likely to continue smoking, no matter the price hikes or pressure on their pockets.

Back in March 2017 BATS shares hit 5530p – in the last 10 years they have never closed the day past this figure. While it’s unlikely the shares might revisit those levels any time soon, they are worth buying for the share buyback programme and current momentum in e-cigarettes. Analysts at Jefferies have set a price target of 3900p.

Go short and long with spread bets, CFDs and share dealing on 16,000+ shares with the UK’s No.1 platform.* Learn more about trading shares with us, or open an account to get started today.
* Best trading platform as awarded at the ADVFN International Financial Awards 2021

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

Act on share opportunities today

Go long or short on thousands of international stocks with CFDs.

  • Get full exposure for a comparatively small deposit
  • Trade on spreads from just 0.1%
  • Get greater order book visibility with direct market access

See opportunity on a stock?

Try a risk-free trade in your demo account, and see whether you’re on to something.

  • Log in to your demo
  • Take your position
  • See whether your hunch pays off

See opportunity on a stock?

Don’t miss your chance – upgrade to a live account to take advantage.

  • Trade a huge range of popular stocks
  • Analyse and deal seamlessly on fast, intuitive charts
  • See and react to breaking news in-platform

See opportunity on a stock?

Don’t miss your chance. Log in to take your position.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.