BAT: Two Steps Forward, Many Steps Back
Company Update (BATS LN) (Neutral): Revenues grew 220% in U.S. Modern Oral and 20% in U.S. Vapour in H1, but shares fell for good reason.
Highlights
Outside Modern Oral and U.S. Vapour, setbacks almost everywhere.
Profit growth almost entirely from the U.S., which had inventory benefit.
Regulatory barriers protecting BAT in the U.S. are coming down.
Net Debt has risen, cashflows are tighter than investors appreciate.
At 4,570p, ~13x P/E and 5%+ Dividend Yield, but not cheap enough.
Introduction
British American Tobacco (”BAT”) released H1 2026 results on Thursday (July 30), having released some headlines in a pre-close update on June 2. Shares fell (3.7%) after Thursday’s release, just as they fell (2.5%) after June’s release. BAT’s share price is now down 7.9% from its peak in May, though still 9.2% higher than a year ago:
BAT Share Price Performance (Last 1 Year)
Source: Google Finance (02-Aug-26).
We had owned BAT in the past, but downgraded our rating on BAT from Buy to Neutral in August 2025, following the abrupt exit of CFO Soraya Benchikh. BAT shares have gained 11.4% (in Pounds, 12.6% in Dollars) since then. This is ~7 ppt behind Philip Morris (“PM”), our top pick in Tobacco and core holding, which has gained 19.8% in Dollars.
BAT reported revenue growth of 220% in U.S. Modern Oral and 20% in U.S. Vapour in H1. Yet shares fell after results and now show a ~13x P/E and 5%+ Dividend Yield. Investors were rightly put off by bad news in the rest of BAT.
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