4th Jun 2024 10:43
(Alliance News) - British American Tobacco PLC has left itself "a lot to do" in the second half despite expressing confidence on Tuesday that it is on track to deliver annual performance in line with guidance, an analyst on Tuesday said.
The London-based cigarette and vaping products maker expects low-single-digit growth in revenue and in adjusted profit from operations growth on an organic, constant currency basis in 2024.
BAT also said it expects its performance to be "second-half weighted", mainly driven by "wholesaler inventory movements" related to continued investment in the US, as well as the phasing of new product launches.
BAT Chief Executive Officer Tadeu Marroco said the group's annual guidance reflects ongoing macro-economic pressures, particularly in the US market and continued lack of effective enforcement against the growing illicit vapour trade.
The group predicts its first-half revenue and adjusted profit from operations to be down by a low-single digit percentage on an organic, constant currency basis.
It expects acceleration in the second half to driven by the phasing of innovation in new categories, and the benefits of first-half investment in US commercial actions and related wholesaler inventory movements.
The cigarette maker projects "strong" revenue and profit growth for Velo, noting it sees significant opportunity for Velo in emerging markets, with continued strong volume performances in Pakistan and South Africa.
"As we continue our journey towards building a 'smokeless world', guided by our refined strategy, we will progressively improve our performance to deliver 3% to 5% revenue, and mid-single digit adjusted profit from operations growth on an organic constant currency basis by 2026," CEO Marroco said.
BAT expects 2024 global tobacco industry volume to decline 3% in 2024.
Shares in BAT were down 1.0% to 2,410.37 pence each on Tuesday morning in London. The wider FTSE 100 index was down 0.6%.
Citi analyst Simon Hales said that, while management has reiterated its full-year guidance metrics, first half organic sales growth and earnings before interest and tax are likely to be below consensus expectations.
"Crucially, the group expects organic revenue and adjusted EBIT to be down by [a low single digit percentage] in the first half," Hales noted, compared to consensus estimates currently at plus 1.0% and minus 0.5% respectively.
Hales said while the group has always indicated 2024 delivery would be second-half weighted, due to product innovation phasing, the timing of benefits from first-half US commercial investment and US wholesaler inventory moves, "it has left itself a lot to do" in the second half.
These factors coupled with likely small trims to full-year consensus earnings per share estimates on forex are likely drive the stock lower, Hales suggested.
The Citi analyst noted currency movements are now expected to be a 4% headwind to Ebit compared to a 3% hit previously.
Hales kept a 'buy' rating on BAT.
AJ Bell Investment Director Russ Mould pointed out BAT faces further challenges.
"Additional headwinds present a longer-term problem for the group. Governments are increasingly anti-smoking and anti-vaping despite the tax income these products generate. More individuals are prioritising health and wellness, and this plays into a growing movement in society to stamp out bad habits like smoking and eating unhealthy things. Competition also remains fierce. Add these things together and it’s clear that British American Tobacco faces a tougher future."
By Jeremy Cutler, Alliance News reporter
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