British American Tobacco targets US market in $1bn next generation push

British American Tobacco completed the acquisition of Reynolds in the summer of 2017 - PA

British American Tobacco, the world’s second-largest cigarette company, has nosed ahead of its rivals in the race to crack the US heated-tobacco market.

Posting better-than-expected first-half profits, the Dunhill and Rothmans owner said it would start testing its Eclipse heating device across the Atlantic later this year. The move puts BAT ahead of its rivals in what is the world’s biggest vaping market.

In results that were flattered by BAT’s $49.4bn (£37.8bn) acquisition of Reynolds last year, revenue for the first six months of 2018 rose 56.9pc to £11.6bn. Profit before tax was £4bn.

Marlboro owner Philip Morris is leading the global tobacco heating market, dominating with its IQOS device. Tobacco companies say customers prefer heated tobacco to traditional e-cigarettes which are based on a nicotine-infused liquid.

An application to sell IQOS in the US with a claim of reduced risk is being considered by US authorities. BAT’s Eclipse device has not sought such an application.

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Jefferies analyst Owen Bennett said: "It remains to be seen how popular heated tobacco will be in the US but being first, and in a format we think will appeal more (a cigarette-like product as opposed to a device), positions it well.”

BAT chief executive Nicandro Durante remained confident of exceeding £1bn of annual revenues from its next generation products (NGP) – which include both heated and vapour-based offerings.

Deutsche Bank analyst Archit Agarwal said the retention of the NGP guidance was very reassuring, concluding: “Against the travails of its immediate peer (Philip Morris International) BAT’s progress has been serene in comparison in our view.”

e-cigarettes and health warnings

Mr Durante said: “Our strategy is to continue to grow our combustible business while investing in the exciting potentially reduced risk categories of THP [tobacco heating products], vapour and oral. As the group expands its portfolio in these categories, we will continue to drive sustainable growth.

“The performance of Reynolds American since acquisition is encouraging and the group’s diverse NGP portfolio has grown strongly.”

BAT shares rose 5.2pc in afternoon trading.