British American Tobacco H1 Results Down; Now Sees FY25 Revenue Growth At Top End Of View

British American Tobacco reported a first-half decline in profit before taxation to £5.57 billion and a 2.2% revenue drop to £12.07 billion, though reported EPS rose 1.6% to 203.6 pence. Despite these results, shares gained as the company maintained its fiscal 2025 adjusted profit growth forecast of 1.5-2.5% and now expects revenue growth at the top end of its 1-2% range, driven by a return to growth in the U.S. (combustibles and Velo Plus) and global Velo expansion, despite an anticipated 2% decline in global tobacco volumes.

Analysis

British American Tobacco presented a mixed first-half financial report, with reported revenue declining 2.2% to £12.07 billion and profit before tax falling slightly to £5.57 billion. However, these headline figures are materially impacted by foreign exchange headwinds, as evidenced by the 1.8% revenue growth on a constant currency basis. This underlying growth was driven by a significant return to growth in the U.S. market, fueled by both traditional combustibles and the Velo Plus new category product. The market's positive reaction, with shares gaining 1.8%, indicates investors are prioritizing the company's forward-looking guidance over the historical results. Management reinforced this optimism by maintaining its fiscal 2025 adjusted profit growth forecast of 1.5% to 2.5% and, more importantly, upgrading its revenue growth expectation to the top end of the 1% to 2% range. This guidance appears particularly resilient when contrasted with the company's forecast of a 2% decline in global tobacco industry volume, suggesting successful market share capture, pricing power, and a strategic pivot to growth categories are effectively offsetting secular industry decline.

Key Decisions for Investors

• Investors should look past the reported headline declines and focus on the 1.8% constant currency revenue growth and upgraded full-year revenue guidance, which signal underlying operational strength.
• The successful performance of the Velo Plus product and the return to growth in the U.S. market are critical pillars of the company's strategy; continued momentum in these areas should be monitored closely as a key performance indicator.
• While the forward-looking guidance is positive, investors must remain cognizant of the foreign exchange risks that impacted first-half results and could continue to create volatility between reported and underlying performance.