- BAT raised its forecast for revenue from vapes and nicotine pouches.
- Shares fell 4 per cent after the company left overall guidance unchanged.
- A recent US regulatory shift is expected to open up new opportunities for nicotine products.
British American Tobacco (BAT) has raised its growth expectations for vaping and other nicotine alternatives after a regulatory shift in the US, although investors appeared unconvinced after the company kept its wider financial guidance unchanged.
The maker of Lucky Strike and Dunhill cigarettes said revenue growth from products such as Vuse vapes and Velo nicotine pouches is now expected to reach the mid-teens this year, higher than its previous forecast of low double-digit growth. The stronger outlook follows a change in approach by US regulators that could make it easier for companies to bring new nicotine products to market.
Despite the upgrade, BAT's shares fell around 4 per cent after the company said both revenue growth and adjusted operating profit for the year were still expected to land at the lower end of its existing guidance ranges.
A bigger opportunity in the US
The US remains BAT's largest market, but growth in newer nicotine products has been slowed by a lengthy approval process requiring manufacturers to secure licences before launching products.
Last month, the US Food and Drug Administration said it would exercise what it described as "enforcement discretion" for certain unlicensed products whose applications meet specific standards. The move is seen by the industry as a potential opening for new launches and stronger competition in the market.
BAT chief executive Tadeu Marroco reportedly told analysts that the company sees a significant opportunity in the US, estimating that unlicensed vape sales are worth around £7 billion annually.
The company is preparing to launch flavoured versions of its Vuse vape range during the third quarter, alongside an updated Velo nicotine pouch later in the year, in an effort to strengthen its position in the market.
Investors seek stronger signals
While BAT is increasingly focused on reduced-risk products, traditional cigarette sales continue to face pressure. The company said it lost market share in cigarettes across its seven largest tobacco markets, including the US, as consumers increasingly switched to cheaper products.
BAT also expects global tobacco volumes to decline by 2.5 per cent this year, a steeper drop than previously forecast.
Some analysts had expected the company to raise its overall revenue outlook following the improved prospects for vaping products. However, BAT opted to maintain its existing forecasts, a move that appeared to disappoint investors.
Barclays analyst Pallav Mittal reportedly said the company was taking a cautious approach because of uncertainty surrounding the conflict in the Middle East and its potential impact on consumer spending.
Marroco said the conflict had not yet materially affected BAT's business, but reportedly warned that higher costs for essentials such as fuel could leave consumers with less disposable income to spend on products including cigarettes and nicotine alternatives.
The latest update highlights the growing importance of smoking alternatives for the tobacco industry as cigarette consumption continues to decline globally.
For BAT, the challenge now appears to be balancing a shrinking traditional tobacco business with the growth potential of vapes and nicotine pouches, particularly in the US, where regulatory changes could reshape the market over the coming years.
