BATS 2025 outlook amid challenging conditions
As British American Tobacco (BATS) approaches its 2025 half-year trading update on 3 June, investors are closely monitoring the company’s performance amid a challenging global landscape.
BATS has projected approximately 1% revenue growth for 2025, with adjusted operating profit expected to rise between 1.5% and 2.5%. This conservative forecast reflects ongoing pressures, including increased excise duties in Bangladesh and stringent tobacco regulations in Australia.
The company anticipates a 2% decline in global tobacco industry volumes this year. Despite these challenges, BATS remains committed to its mid-term targets of 3–5% revenue growth and 4–6% adjusted operating profit growth by 2026.
These modest growth expectations reflect the reality facing traditional tobacco companies: declining consumption in developed markets, increasing regulatory pressures worldwide, and the need to balance investment in new product categories with maintaining profitability from conventional cigarettes.
Strategic focus on smokeless product transition
BATS continues to invest in its “New Categories” segment, encompassing products like Vuse (vaping), glo (heated tobacco), and Velo (nicotine pouches). The company aims to become predominantly smokeless by 2035, with these products contributing positively to its financials.
This transition represents perhaps the most significant strategic shift in BATS’ history, as the company attempts to pivot away from its traditional cigarette business towards reduced-risk products. The upcoming trading update will provide crucial insights into the progress of this transformation.
Vuse has become the world’s leading vaping brand by retail market share, with particularly strong performance in the United States and several European markets. The brand’s continued growth trajectory will be a key focus area for investors assessing BATS’ new category strategy.
The heated tobacco category, led by BATS’ glo brand, faces intense competition from Philip Morris International’s IQOS product. Market share gains or losses in key markets like Japan will be closely scrutinised as indicators of BATS’ competitive positioning in this critical segment.
Financial strategy and shareholder returns
In a strategic move to enhance shareholder returns, BATS announced plans to sell a 2.3% stake in India’s ITC, reducing its holding to 23.1%. Proceeds from this sale will bolster BATS’ 2025 share buyback program by £200.00 million, bringing the total to £1.1 billion.
This stake reduction in ITC represents a significant shift in BATS’ approach to its Indian operations. While ITC has been a valuable asset providing steady dividend income, the decision to reduce exposure suggests BATS is prioritising capital allocation toward growth areas and direct shareholder returns.
The expanded share buyback programme demonstrates management’s confidence in the company’s cash generation capabilities and commitment to returning capital to shareholders. With the share price under pressure from various regulatory and legal challenges, this buyback activity provides important price support.
BATS’ dividend policy remains central to its appeal for income-focused investors. The company has maintained its progressive dividend policy, and any commentary on future dividend growth will be closely watched by the substantial retail shareholder base attracted by BATS’ historically high yield, currently at 7.13% (as of 28 May 2025).
Legal challenges and Canadian litigation
BATS has set aside £6.2 billion in provisions related to a proposed C$32.5 billion settlement addressing litigation in Canada over health impacts of smoking. This significant charge contributed to a sharp decline in BATS’ share price earlier this year.
The Canadian litigation settlement represents one of the largest legal provisions in BATS’ history and highlights the ongoing legal risks facing tobacco companies globally. While this provision should provide certainty around Canadian exposure, investors remain concerned about potential similar actions in other jurisdictions.
The timing and structure of settlement payments will be important factors in determining the impact on BATS’ cash flow and financial flexibility. Management commentary on how these payments will be funded and their impact on capital allocation priorities will be closely scrutinised.
Beyond the Canadian case, tobacco companies face ongoing litigation risks worldwide. Any updates on other legal proceedings or changes to the regulatory landscape will be significant factors in assessing BATS’ long-term risk profile.
Regional performance and market dynamics
BATS’ global footprint provides both diversification benefits and exposure to varied regulatory environments. The upcoming trading update will likely provide insights into regional performance across key markets including the US, Europe, Asia-Pacific, and emerging markets.
The United States remains BATS’ largest and most profitable market, primarily through its Reynolds American subsidiary. Performance of both traditional cigarettes and new category products in this crucial market will be a primary focus for investors.
European markets face increasing regulatory pressure, with several countries implementing or considering flavour bans, plain packaging requirements, and tax increases. BATS’ ability to navigate these challenges while maintaining market share will be critical for overall performance.
Emerging markets, while offering growth potential, also present regulatory challenges. The mentioned excise duty increases in Bangladesh exemplify the type of sudden regulatory changes that can impact profitability in these markets, making guidance on emerging market performance particularly important.
Innovation and product development pipeline
Beyond the current new category portfolio, BATS continues to invest in research and development for next-generation products. The company’s approach to innovation and product development will be increasingly important as traditional tobacco volumes decline.
Oral products, including both traditional snus and modern nicotine pouches, represent a significant growth opportunity. BATS’ Velo brand has gained traction in multiple markets, and updates on expansion plans and consumer adoption rates will be valuable indicators of future growth potential.
The regulatory pathway for new products remains complex, with different approaches across various jurisdictions. BATS’ ability to navigate regulatory approval processes for new products while maintaining compliance across existing categories represents a key operational challenge.
Investment levels in new category development must be balanced against the need to maintain profitability from traditional products that continue to generate the majority of cash flow. This balancing act will be reflected in both financial performance and strategic commentary during the trading update.
BATS analyst rating and technical analysis
According to LSEG Data & Analytics, 4 analysts have a ‘strong buy’ recommendation for BATS, 5 a ‘buy’, 4 a ‘hold’ and 1 a ‘sell’ with a long-term mean price target at 3,504.55p, 5% above the current share price (as of 28/05/2025).