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British American Tobacco boosted by vaping demand as customer numbers rise

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·Business reporter
·3-min read
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A woman exhales after vaping in Times Square, during the coronavirus disease (COVID-19) outbreak, in New York City, U.S., March 31, 2020. REUTERS/Brendan McDermid
BAT was the first tobacco firm to get a green light from the US Food and Drug Administration to sell e-cigarettes. Photo: REUTERS/Brendan McDermid

British American Tobacco (BATS.L) saw an influx of 3.6 million customers in the first nine months of the year, more than 2020 as a whole, thanks to a rise in demand for its vaping, heated tobacco and oral products.

The company, which owns brands such as Lucky Strike, Pall Mall and Camel, said more people switched to its Vuse vaping and Velo oral nicotine ranges as a healthier alternative to tobacco. This brought its total non-combustible user base to 17.1 million.

It maintained its full-year profit and sales forecasts for the year, expecting constant currency revenue growth above 5% and mid-single digit adjusted earnings per share growth in 2021. The company is targeting profitability by 2025.

“Benefiting from a continued strong new category performance, which is now a sizable contributor to group revenue growth, we are making excellent progress towards our £5bn ($6.6bn) revenue target by 2025, supported by a clear focus on tobacco heated products,” chief executive Jack Bowles said.

“By leveraging our increased scale, new categories will contribute to profit growth for the first time as their losses start to reduce, a key step on our pathway to profitability by 2025.

“We are building strong, fast-growing, global brands of the future, adding another 3.6 million consumers of non-combustible products in the first nine months of the year, more than in all of 2020.”

BAT stock rose on Tuesday. Chart: Yahoo Finance
BAT stock rose on Tuesday. Chart: Yahoo Finance

The tobacco giant also added that its Vuse e-cigarette range was now a “global leader” in market share in the top five vaping markets in the world.

BAT was the first tobacco firm to get a green light from the US Food and Drug Administration to sell e-cigarettes. In America, sales of combustibles slumped as the industry as a whole is expected to decline by 5.5% in the country.

But this is to remain flat on a global scale due to an increase in Indonesia.

The value that it gained from selling cigarettes increased by 10 basis points, or 0.1%, in the nine months to the end of September, the company revealed, as business grew in Bangladesh and Pakistan.

Shares were around 2% higher on the day in London.

Read more: European stock markets rise as traders shrug off Omicron concerns

Richard Hunter, head of markets and Interactive Investor, said: “For BAT, the strategy is clear and the progress is measurable. However, the share price has been held back by the fact that there are many investors who will simply not touch the sector given the ethical issues, let alone the ever present threat of increased regulation.

“This is unlikely to change in the immediate future and is reflected by a price which has declined by 3.5% during the past year, as compared to a gain of 10% for the wider FTSE100.

“A gap has therefore emerged between the positive prospects for the company, set against some unwillingness from potential new investors. The market consensus, however, remains rooted as a strong buy as a reflection of the company’s strong cash generative ability, a punchy dividend yield and a discounted valuation.

He added: “While this conflict is likely to continue, there are also clear signs that BATs may be a rather different looking entity in the years to come.”

Watch: US gives marketing nod to an e-cigarette for first time

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