British American Tobacco share price: 3 things we learnt from its half-year results
The international tobacco group unveiled a disappointing set of half-year results with cigarette sales unable to be offset by growth in alternative products.
British American Tobacco (BAT) saw its share price slide more than 5% on Wednesday after it unveiled its half-year results, with sales growth of vaping products unable to quell investors’ fears over declining cigarette revenues.
BAT’s remains on track to hit full-year targets
Despite global tobacco industry volumes forecast to decline by approximately 3.5%, BAT insists that it remains on track to meet its full-year guidance, with the company expecting revenue growth in the mid-upper half of its 3%-5% target range.
However, the producer of cigarette brands like Dunhill and Lucky Strike managed to disappoint analysts after reporting that its share of the combustibles market by volume is down by 10 basis points, while revenue growth in was less than 30% alternative products.
‘Our Strategic Brands continue to take share, while new product launches and a sharpened focus on priority markets and products are expected to drive stronger New Category growth in the second half,’ BAT CEO Jack Bowles said.
‘We are on track for a good performance in 2019 with revenue and adjusted operating profit growth in line with our guidance and delivery of high single figure FY adjusted diluted EPS growth at constant rates of exchange.’
Vaping business on track to double sales growth
Alternative smoking products are on track to deliver between 30%-50% full-year revenue growth, the company said in its half-year results, with its vape kit Vuse Alto continuing to grow retail volumes in the US.
The company is seeing strong growth in new products outside of the US too, with its Vype ePen3 reaching a value share in the UK and France of 6.8% and 12.1% respectively.
BAT is investing heavily into new alternative products to offset decline in tobacco sales, with the company hoping to generate revenues of around £5 billion in vaping products by 2023.
‘We are creating a stronger, simpler business and driving a step change in New Categories, built on the foundation of a strong combustible business,’ Bowles said. ‘With our focus on building global brands, we intend to consolidate our New Category portfolio into fewer brands.’
US business in decline
Data from Nielson showed that tobacco sales continue to decline on a month-on-month basis in the US market which BAT relies on for generating around 40% of its total sales.
BAT continues to invest heavily to drive growth in e-cigarettes in the US, but regulators have threatened to impose new rules restricting vaping products and even proposed a ban on menthol cigarettes in a bid to quell young people smoking.
This challenging environment to growth in the US has led many analysts and investors to doubt BAT’s sales forecasts for new categories.
This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material 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 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. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research 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 and quarterly summary.
See an opportunity to trade?
Go long or short on more than 17,000 markets with IG.
Trade CFDs on our award-winning platform, with low spreads on indices, shares, commodities and more.
Live prices on most popular markets