Expectations have been lowered for e-cigarettes.
British American Tobacco shares go up in smoke following update
- The company said it expected revenue from cigarette alternatives to reach £900m this year, down from a previous target of £1bn
- Shares hit a 4-year low last week and have failed to bounce back sufficiently as shares fell 1.25% in response to the morning news
- We recommend BAT as a ‘hold’ for lower to medium risk income-seeking investors
Cigarette company British American Tobacco (BAT) issued a trading update this morning cutting its full-year revenue target for next-generation products leading to a fall in the share price.
Shares are down 1.25% in early trading following the update, which cut expectations for revenue from e-cigarettes to £900 million from £1 billion. The group also reiterated that industry volume is likely to be around 3.5% lower this year.
The trading update follows last week’s fears of a crackdown on cigarette regulation as the US Food and Drugs Administration highlighted research that discovered that cutting nicotine by as much as 96% would improve public health. Subsequently, US regulators are set to focus on e-cigarettes which has sent the traditional tobacco giants sliding.
BAT is a share with an excellent long-term track record but it has come under pressure this year and hit a 4-year low last week. But overall the group stated that it continues to perform well and is still confident to achieve good adjusted revenue growth mainly as a result of its Strategic Brand Portfolio.
As Western governments keep the pressure up on tobacco companies, investor focus will increasingly be on its new products, a number of which are set to be launched in the coming months. The group generates significant steady cash-flow which helps with dividend payments; the quarterly payments are appealing for income-seekers but the long-term plan by the US authorities to reduce nicotine addiction presents a challenge so the shares are recommended at no more than a ‘hold’.
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