British American Tobacco is seeing early benefits from a US crackdown on illicit vaping products https://t.co/yPruKnvfey ...

Summary of British American Tobacco (NYSE:BTI) Conference Call - December 09, 2025 Company Overview - **Company**: British American Tobacco (BAT) - **Date**: December 09, 2025 - **Key Speakers**: Victoria Buxton (Group Head of Investor Relations), Tadeu Marocco (Chief Executive), Javed Iqbal (Interim Chief Financial Officer) Key Industry Insights - **Industry**: Global nicotine industry, particularly focusing on combustibles, modern oral products, and vapor categories - **Market Dynamics**: The industry is experiencing a transformation with adult smokers increasingly switching to new categories, particularly modern oral products and vapor Core Points and Arguments 1. **Revenue and Profit Growth**: BAT expects around 2% revenue and adjusted operating profit growth for the full year 2025, with positive momentum in the U.S. business driven by combustibles and VLO Plus performance [2][3] 2. **New Category Growth**: Anticipated acceleration in new category revenue growth to double digits in the second half of 2025, with mid-single-digit growth expected for the full year [2][3] 3. **Modern Oral Products**: Modern Oral is the fastest-growing category, with VLO gaining volume share up 590 basis points to 31.8% in key markets. The category is positioned as a lower-risk alternative to traditional cigarettes [4][5] 4. **FDA Support**: The FDA is recognized for its role in tobacco harm reduction, with a commitment to provide science-based information about nicotine products, which is expected to facilitate consumer transitions to reduced harm products [5][6] 5. **Velo Plus Performance**: Velo Plus has achieved significant growth, reaching a 21.9% volume share in October, up from 6.9% prior to its launch, and is driving triple-digit revenue growth in the U.S. [6][7] 6. **Heated Products**: The heated products segment is undergoing a transitional phase, with a new product, glo Halo, launched in Japan, aimed at capturing the premium segment [9][10] 7. **Vapor Category Recovery**: Vuse has regained volume and revenue growth in the U.S. after 18 months of decline, with a 50.4% value share, supported by increased federal enforcement against illicit products [11][12] 8. **Combustibles Performance**: The U.S. combustibles business is expected to deliver revenue and profit growth for the first time since 2022, with a decline in industry volume improving compared to previous years [15][16] 9. **Regulatory Challenges**: Significant regulatory headwinds in markets like Bangladesh and Australia are expected to impact overall revenue growth, with illicit trade accounting for over 85% of nicotine usage in these regions [16][17] 10. **Financial Discipline**: BAT maintains a strong cash generation profile, with operating cash conversion expected to exceed 95% in 2025 and a commitment to deleveraging [17][18] Additional Important Insights - **Market Exit Strategy**: BAT plans to exit underperforming markets like Mozambique and Cuba, which will impact organic growth figures [28][37] - **Investment in Innovation**: Continued investment in premium products and innovation is prioritized, with a focus on maintaining competitive advantages in the market [30][31] - **Future Guidance**: For 2026, BAT expects to achieve revenue growth at the lower end of its mid-term algorithm, with a focus on sustainable financial delivery and transformation [19][35] Conclusion - BAT is optimistic about its growth trajectory, particularly in the U.S. market, and is committed to delivering sustainable shareholder value through dividends and share buybacks while navigating regulatory challenges and market dynamics [18][47]

Core Viewpoint - British American Tobacco (BAT) is planning to sell between 7% and 15.3% of its stake in ITC Hotels through an accelerated bookbuild process to optimize pricing outcomes [1][2]. Group 1: Stake Sale Details - BAT intends to divest its stake in ITC Hotels, which is currently 15.28%, to investors, subject to customary closing conditions [2][3]. - The proceeds from the sale will be utilized to achieve a target leverage corridor of 2-2.5x adjusted net debt to adjusted EBITDA by the end of 2026 [3][6]. Group 2: Strategic Rationale - The direct shareholding in ITC Hotels is not considered a strategic holding for BAT, as stated by the CEO, Tadeu Marroco [4][6]. - BAT has previously indicated that it has no interest in being a long-term shareholder of a hotel chain in India, emphasizing the need to maximize shareholder value at the right moment [5][6]. Group 3: ITC Hotels Overview - ITC Hotels operates over 200 hotels, with 146 currently operational and 61 in the pipeline, under six brands: ITC Hotels, Mementos, Welcomhotel, Storii, Fortune, and WelcomHeritage [7].

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Core Viewpoint - Investors in the Tobacco sector should consider Universal Corp. (UVV) and British American Tobacco (BTI), with UVV currently presenting a better value opportunity based on various financial metrics [1]. Group 1: Zacks Rank and Earnings Outlook - Universal Corp. has a Zacks Rank of 2 (Buy), indicating a positive earnings outlook, while British American Tobacco has a Zacks Rank of 4 (Sell) [3]. - The Zacks Rank emphasizes stocks with favorable earnings estimate revisions, suggesting that UVV has an improving earnings outlook compared to BTI [3]. Group 2: Valuation Metrics - UVV has a forward P/E ratio of 10.92, which is lower than BTI's forward P/E of 12.28, indicating that UVV may be undervalued relative to BTI [5]. - The PEG ratio for UVV is 2.73, while BTI's PEG ratio is 2.76, showing that both companies have similar growth expectations factored into their valuations [5]. - UVV's P/B ratio is 0.86, significantly lower than BTI's P/B of 1.79, further supporting the argument that UVV is a more attractive value option [6]. Group 3: Value Grades - UVV has a Value grade of B, while BTI has a Value grade of C, indicating that UVV is perceived as a better value investment based on key financial metrics [6].

Core Viewpoint - ANZ Group CEO Nuno Matos emphasized the need for a cultural overhaul within the bank and accountability for past mistakes, as the institution faces ongoing scrutiny from Australian regulators [1] Group 1: Cultural Overhaul - The bank is under pressure to implement significant changes in its corporate culture to regain trust and improve its operations [1] - Nuno Matos highlighted the importance of accountability in addressing the bank's previous errors and failures [1] Group 2: Regulatory Pressure - ANZ Group is currently facing heightened scrutiny from Australian regulators, which is influencing its operational strategies and governance [1] - The ongoing regulatory challenges necessitate a proactive approach to compliance and risk management within the bank [1]

Core Viewpoint - Investors interested in undervalued tobacco stocks should consider Universal Corp. (UVV) over British American Tobacco (BTI) due to UVV's stronger performance in key valuation metrics and analyst outlook [1][3][7] Valuation Metrics - UVV has a forward P/E ratio of 11.58, while BTI's forward P/E is 12.12, indicating UVV may be more attractively priced [5] - The PEG ratio for UVV is 2.89, compared to BTI's 3.82, suggesting UVV offers better value relative to its expected earnings growth [5] - UVV's P/B ratio stands at 0.91, significantly lower than BTI's P/B of 1.77, further supporting UVV's undervaluation [6] Analyst Outlook - UVV currently holds a Zacks Rank of 1 (Strong Buy), reflecting an improving earnings estimate revision trend, while BTI has a Zacks Rank of 3 (Hold) [3][7] - The positive earnings outlook for UVV enhances its attractiveness as a value investment option [7]

Core Viewpoint - BT's share price experienced a modest increase following the release of mixed financial results, rising over 2.7% to reach 185p, marking its highest level in over a week [1] Financial Performance - The financial results published by BT were described as mixed, indicating variability in performance metrics [1] Market Reaction - The share price increase reflects positive market sentiment despite the mixed results, suggesting investor confidence in BT's future prospects [1]

Core Insights - British American Tobacco (BTI) has suspended its U.S. vape rollout due to regulatory pressure from the FDA [2][3] - The suspension highlights the challenges faced by major tobacco companies in a market increasingly affected by unregulated products [3][4] - The U.S. market for smoking alternatives is valued at $22 billion, indicating significant competition and profit erosion [3] Regulatory Challenges - The FDA has intensified efforts to regulate unlicensed products, prompting BTI to halt its pilot program for the Vuse One vape [2][3] - The decision to pause the pilot was made by Reynolds American, BTI's U.S. arm, which had previously planned to launch the product without FDA authorization [3][4] Market Context - The initiative to introduce the unlicensed vape was seen as a significant shift in BTI's engagement with FDA regulations, attracting attention from various stakeholders [4] - The competition from unregulated products, particularly those imported from China, poses a threat to established tobacco companies [3]

Investment Rating - The report assigns an "Overweight" rating for the new tobacco industry, particularly focusing on the new oral nicotine pouch segment [3]. Core Insights - The industry is experiencing clear trends driven by supply-demand dynamics, leading to accelerated growth in the new tobacco sector, with international tobacco giants increasing their investments [2]. - New oral nicotine products, which combine characteristics of heated non-combustible and vaporized electronic cigarettes, are gaining popularity due to their flavor variety and convenience, presenting a significant market opportunity [3][58]. - The report highlights that the new oral nicotine segment is expected to have the highest gross margins among new tobacco products, making it an attractive area for investment [3]. Summary by Sections 1. Oral Tobacco Industry - The global penetration rate for oral tobacco is currently at 1%, with a projected CAGR of 27% from 2023 to 2028, indicating strong growth potential [18][58]. - New oral nicotine products are expected to grow at a CAGR of 35% during the same period, with the market size reaching €15 billion by 2028 [18]. 2. Traditional Oral Tobacco - Traditional oral tobacco products have a focused audience and are primarily used in specific scenarios, with historical roots in Sweden and North America [54]. 3. New Oral Tobacco - The introduction of nicotine pouches, such as ZYN by Swedish Match, has marked the beginning of a new market segment, with significant growth observed in the U.S. market [58]. - The new oral tobacco products are characterized by their non-tobacco composition, lower health risks, and a variety of flavors, which cater to diverse consumer preferences [58][61]. 4. Industry Leaders - **Philip Morris International (PMI)**: After acquiring Swedish Match for $16 billion, PMI has established itself as a global leader in the new oral tobacco market, with a market share of 42% [76][78]. - **Altria**: Focused on the U.S. market, Altria's new oral tobacco brand "On!" has seen a CAGR of 49% from 2021 to 2024 [81]. - **British American Tobacco (BAT)**: Concentrating on the European market, BAT holds a significant share in the new oral tobacco segment, particularly in six core markets [84]. - **Haypp Group**: A leading online sales platform for nicotine pouches, Haypp is expected to achieve a revenue of 5 billion Swedish Krona in 2025, reflecting the industry's high growth potential [90][93]. 5. Valuation Review - The new oral tobacco segment is becoming a crucial valuation driver for companies in the tobacco industry, with significant investments and acquisitions indicating strong future prospects [3][22].