British American Tobacco's shares tumble; conclusions after 2024 earnings report💡

Shares of British American Tobacco (BATS.UK) are losing 7.5% in today's session, after the company's forecasts for revenue growth in fiscal 2025 did not prove good enough to sustain the sizable gains we've seen in the company's stock recently. However, this does not change the fact that the results themselves were relatively good. In F2024, the decline in operating profit in the US (-3.5%) was more than offset by growth in other countries (+7.5%), allowing BAT to maintain group-level growth (+1.4%). The performance of new non-combustion alternative product categories, such as Velo, is also encouraging. 

The company sees the main negative factors for the year as:

• Bangladesh: Acceleration of illegal trade driven by VAT and customs duty increases. (BAT's largest market)
• Australia: Acceleration of illegal trade driven by ad hoc excise tax increases

The negative impact is estimated at: ~1% on revenues, ~2% on operating profit

Below are selected results presented by the company:

ANNUAL FORECAST

• Adjusted operating profit +1.5% to +2.5%

The most important aspects that may affect share valuation this year. Source: BAT

2024 EARNINGS

• Adjusted operating profit £11.89 billion, estimates £11.96 billion
• Operating profit £2.74 billion vs. last year's loss £15.75 billion y/y, estimate £10.71 billion
• Revenue £25.87 billion, estimates £26.31 billion
• Dividend per share 240.24 pence, forecast 237.55 pence
• Adjusted earnings per share 362.5 pence, forecast 362.9 pence

CONCLUSIONS:

The company's results do not fare badly, although after such a large appreciation in BATS' share price, a large part of the market might have expected the future outlook to be more optimistic. Industry media reported that a key topic during this release would be any mention of the performance of alternative products. In this aspect, the results did not spoil, indicating a nearly 6% decline in vaporizer volumes and a nearly 12% decline in heater volumes (the company's key alternative products). Thus, they offset the positive surprise of the powerful growth in sales of Velo pouches. It is worth remembering that for tobacco companies, the key element of the transformation will be precisely the increase in the share of alternative products in the revenue structure.

Share of each group in BATS revenue. Source: BAT

The company's shares tested the 50-day EMA today (blue curve on the chart), after which the demand side managed to negate part of the initial discounts. 

Source: xStation