BofA Securities maintains buy rating on British American Tobacco stock

BofA Securities reiterated a Buy rating on British American Tobacco (BTI) with a £39.00 price target following its H1 2025 pre-close trading statement; the company slightly increased its full-year 2025 revenue guidance to 1-2% while maintaining adjusted EBIT growth outlook of 1.5-2.5%. Key drivers include improving U.S. combustibles performance and strong growth in VELO, offset by disappointing vapour performance impacting New Categories revenue growth, which saw a low-single-digit increase against a 9% consensus. Management confirmed its medium-term growth algorithm projecting 3-5% sales growth and 4-6% EBIT growth starting in 2026.

Analysis

BofA Securities has reiterated its Buy rating on British American Tobacco (BTI) with a £39.00 price target, following the company's first-half 2025 pre-close trading statement. BTI modestly raised its full-year 2025 revenue guidance to approximately 1-2% from a previous 1%, while maintaining its adjusted EBIT growth outlook at around 1.5-2.5%. The update indicated a slight improvement in U.S. combustibles, with management anticipating a resumption of sales and EBIT growth in the U.S. market from the first half of 2025. Furthermore, BTI's modern oral product, VELO, continues to demonstrate strong growth, and the initial launch of Glo Hilo in Serbia has been encouraging. However, these positives are tempered by disappointing performance in the company’s vapour category, which has adversely affected the overall revenue growth of its New Categories segment. Specifically, New Categories revenue saw only a low-single-digit increase in the first half, significantly underperforming the consensus estimate of approximately 9%. While management remains confident in achieving mid-single-digit revenue growth for New Categories for the full year, this projection also trails the consensus expectation of around 12%. Despite these near-term challenges in New Categories, BTI has confirmed its medium-term growth algorithm, targeting 3-5% sales growth and 4-6% EBIT growth commencing in 2026.

Key Decisions for Investors

• Investors should carefully weigh BofA's reiterated Buy rating and BTI's affirmed medium-term growth targets against the current underperformance and lowered near-term expectations within the New Categories segment, particularly concerning vapour products.
• Monitor the New Categories segment's revenue trajectory closely, specifically whether BTI can achieve its revised mid-single-digit growth for the full year 2025, as this remains a key area of concern and lags significantly behind previous consensus estimates.
• The anticipated recovery in U.S. combustibles from H1 2025, continued strong performance of VELO, and tangible progress towards the 2026 medium-term financial objectives are critical positive catalysts to observe.