BAT considers selling part of ITC stake amid speculation

British American Tobacco (BTI) confirmed it is considering selling a portion of its stake in ITC Limited (ITC) through an on-market trade, though no deal is guaranteed. This potential divestment aligns with BAT's strategic shift towards a "Smokeless World," focusing on new category products, which contributed £3.4 billion to the company's £25.9 billion revenue in 2024. BAT aims to have 50 million adult consumers of its smokeless products by 2030 and derive 50% of its revenue from these products by 2035.

Analysis

British American Tobacco (BTI) is actively considering the divestment of a portion of its shareholding in ITC Limited, an Indian conglomerate, through an on-market trade. This potential transaction, while not yet certain nor its terms finalized, aligns with BAT's clearly articulated strategic pivot towards a "Smokeless World." In 2024, BAT reported total revenues of £25.9 billion, with its new category products such as Vuse, glo, and Velo contributing a significant £3.4 billion, underscoring the growing importance of this segment. The company has set ambitious long-term targets, aiming for 50 million adult consumers of its smokeless products by 2030 and for these products to constitute 50% of its total revenue by 2035. This strategic reorientation is complemented by strong ESG commitments, including a net-zero emissions target by 2050 and a Triple A rating from CDP in 2024 for its environmental transparency and action. The market sentiment appears mildly positive towards these developments, particularly for BTI, reflecting a potential appreciation for the strategic refocus and capital reallocation possibilities, though the precise financial impact of the ITC stake sale remains undisclosed pending further announcements.

Key Decisions for Investors

• Investors should monitor further announcements from British American Tobacco regarding the potential ITC stake sale, as the size and terms of any transaction will be critical in assessing its impact on BAT's capital structure and ability to fund its smokeless transition.
• Evaluate BAT's progress towards its 2030 and 2035 targets for new category consumer adoption and revenue contribution, as achieving these milestones is fundamental to the success of its long-term strategic pivot and future valuation.
• Consider the implications of BAT's ESG profile, including its CDP Triple A rating and net-zero commitments, which may enhance its appeal to sustainability-focused mandates and differentiate it within the sector, alongside the core business transformation.