Morning Note: Market News and BAT
MARKET NEWS
US markets closed in modestly positive territory with the S&P 500 closing 5935.94 +24.25 (+0.41%) and the Nasdaq Composite closing 19,242.61 +128.84 (+0.67%). In Asia, the Hang Seng was the standout performer +1.4% in an otherwise lacklustre session. Gold eased back in early trade after strong gains on Monday.
China’s manufacturing sector had its worst slump since September 2022, with the Caixin PMI unexpectedly falling to 48.3 last month from 50.4 in April as higher US tariffs took a toll on smaller exporters.
Trade latest: Britain’s trade chief meets USTR Jamieson Greer in Paris today as fresh US tariffs on steel threaten to complicate an earlier agreement. Howard Lutnick expressed optimism over an India trade deal.
Europe: Emmanuel Macron and Giorgia Meloni will look to reconcile during a meeting in Rome, ahead of NATO and G-7 summits later this month. Meanwhile, inflation in the euro area may have decelerated last month, bolstering the case for the ECB to reduce interest rates again this year.
Corporate: Morgan Stanley is said to have kicked off a $5 billion debt sale for Elon Musk’s xAI. The company is also launching a $300 million share sale that values it at $113 billion. Disney is laying off several hundred employees across its film and TV businesses. Microsoft cut hundreds more jobs just weeks after its largest layoff in years. Alleima’s CEO said the Swedish steelmaker won’t absorb potential costs from tariffs and will raise prices.
The Middle East: The US won’t allow any uranium enrichment as part of any deal with Iran, Trump said. Meanwhile, Saudi Arabia’s neighbours are getting more attention — and investment — as the kingdom struggles with lower oil prices and weakening finances.
BRITISH AMERICAN TOBACCO PLC – First Half Trading Update
British American Tobacco (BAT) has this morning released a trading update which highlights that it is on track for full year delivery, with revenue slightly ahead of previous guidance.
In response, the shares are little changed in early trading.
BAT is a global tobacco company with more than 200 brands. The group has a Strategic Portfolio of priority brands made up of combustible tobacco products (including Dunhill, Kent, Lucky Strike, Pall Mall, Rothmans, Newport, and Camel) and New Categories (including vapour, tobacco heated products (THP), and modern oral, with brands including Vype, glo, and Vuse). BAT also owns a portfolio of other international and local cigarette brands.
The group’s aim is to progressively improve its performance to deliver 3%-5% revenue growth and mid-single digit adjusted profit from operations growth on an organic basis at constant currency by 2026. Further out, the group has also committed to ‘Building a Smokeless World’, with 50% of revenue derived from non-combustibles by 2035.
In the update they note that the U.S. is expected to return to revenue and profit growt in H1 and FY25, driven by strengthening combustibles delivery and an excellent Velo Plus performance. They saw strong global growth from Velo in modern oral, the fastest growing new category segment. Geographically, the noted continued strong performance in Africa and the Middle East (AME) while in Asia-Pacific business was impacted by excise and regulatory challenges in Bangladesh and Australia, as previously guided. They experienced low-single digit first half new categories revenue growth, with the impact of illicit vapour products in the U.S. and Canada partly offsetting excellent Velo performance.
Looking forward to the second half, the company noted accelerating new category revenue driven by deployment of innovations in key markets and further improvement in new category contribution margin, driven by their quality growth focus. In terms of revenue growth further out, the company is confident in delivering mid-term 3-5% revenue growth. On the financial position they note the partial monetisation of the ITC stake enabling increased financial flexibility. Cash generation remains strong and the group is committed to reducing leverage to 2-2.5x by the end of 2026, with progressive dividend and sustainable share buy-backs – increased to £1.1bn in 2025.
Tadeu Marroco, Chief Executive said "Our revenue performance in H1 is slightly ahead of our previous guidance, and we now expect to deliver FY revenue growth of 1-2%, supporting 1.5 to 2.5% adjusted profit from operations growth. 2025 is a deployment year and, as previously highlighted, we expect our performance to be H2 weighted, mainly driven by the roll-out of new category innovations in key markets from the middle of the year.
In the U.S., I am very pleased that we expect to return to both revenue and profit growth in H1 and FY. While combustibles industry volume remains under pressure c.-9% YTD, we have stabilised our total industry volume and value share. Excluding the deep discount segment where we are not present, we are gaining share, driven by Natural American Spirit and Lucky Strike.
I am excited by the successful launch of Velo Plus in the U.S. driving excellent volume and revenue growth, with strong market share gains. Globally, Velo continues to gain volume share in this fast-growing category, driven by the U.S. and our continued leadership position in AME.
The vapour category remains impacted by the proliferation of illicit vapour products in the U.S. and Canada, with U.S. legal industry volume down mid-teens YTD. We expect low-single digit new category revenue growth in H1, accelerating to mid-single digit for FY. Excluding the impact of the U.S. and Canada Vapour markets, we expect double-digit New Category revenue growth for FY. While there is more to do, I am encouraged by the progress we are making through our quality growth focus, and prioritising investment to the largest profit pools. I am confident that the investments we have made and the actions we are taking will drive a return to our mid-term algorithm in 2026. I am pleased with our progress in increasing financial flexibility driven by continued strong operating cash conversion and the completion of a partial monetisation of our stake in ITC. I remain committed to delivering sustainable value for our shareholders through strong cash returns, including our progressive dividend and a sustainable share buy-back programme."
