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BAT reaffirms 2026 outlook and launches £1.3bn share buy-back, signalling confidence amid steady execution and improving US momentum.
This article covers information on British American Tobacco PLC.
LON:BATSBritish American Tobacco has reaffirmed its 2026 outlook and announced a £1.3 billion share buy-back for FY26. The trading update points to steady FY25 delivery, stronger U.S. momentum, and accelerating New Category growth in the second half. It is not a fireworks update, but it is tidy execution with clearer signs of improvement where it matters.
The headline: c.2% revenue growth and c.2% adjusted profit from operations growth for FY25 (both at constant currency), plus a commitment to sustainable buy-backs and progressive dividends alongside deleveraging. For a sector wrestling with regulation, illicit trade and FX headwinds, that mix of discipline and cash returns will reassure many income-focused investors.
| Metric | Guidance/Update |
|---|---|
| FY25 Group revenue growth (constant currency) | c.2% |
| FY25 adjusted profit from operations growth (constant currency) | c.2% (incl. c.1% transactional FX headwind) |
| H2 New Category revenue | Accelerating to double-digit growth |
| FY25 New Category revenue | Mid-single digit growth |
| Vuse FY25 revenue | Down high-single digit (vs. -13% in H1) |
| Operating cash flow conversion | In excess of 95% in FY25 |
| Net finance costs (FY25) | c.£1.8 billion |
| Gross capital expenditure (FY25) | c.£650 million |
| Leverage target | 2.0-2.5x by end 2026 |
| Share buy-back | £1.3 billion in FY26 |
| FX headwind on APFO / EPS (FY25) | c.3% APFO, c.4% adjusted diluted EPS |
| 2026 “growth algorithm” | +3-5% revenue, +4-6% APFO, +5-8% adj. diluted EPS (expect lower end in 2026) |
BAT calls out “strong U.S. revenue and profit momentum” led by better combustibles delivery and Velo Plus, which is on track for full-year profitability at the category contribution level. In share terms, U.S. value share is up 20bps with volume share flat. That is modest, but directionally positive given a tough backdrop.
The crucial line is enforcement. BAT sees early signs of Federal and State action against illicit vapour products, which has coincided with improved Vuse volumes and revenue in the U.S. If that trend continues, the legal category could recapture lost ground, lifting pricing power and margins. Caution is sensible – they still expect Vuse FY revenue to be down high-single digit – but the second half is clearly better than the first.
New Categories (Heated Products, Vapour and Modern Oral) are accelerating in H2 and remain central to BAT’s “Quality Growth” mantra – more profit from the most profitable markets and segments.
This is the brightest spot. Modern Oral is the fastest-growing New Category and typically carries attractive unit economics once scale is reached. Velo Plus profitability is a milestone that should help group margins over time.
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Premium “Vapour Done Right” is a sensible angle. If enforcement squeezes illicit disposable volumes and retailers rationalise ranges, premium closed systems like Vuse Ultra could gain share and value. For now, improvement is early, not mission accomplished.
BAT is repositioning toward premium heated products with glo Hilo. That likely caps near-term share while they pivot, but it aligns with the profit-first strategy. 2026 becomes the key proving ground.
Group value share in top markets is flat, with volume share down 10bps. The U.S. and AME (Americas and Europe) are the profit anchors, supported by strong delivery in Brazil, Türkiye and Mexico. APMEA is softer, with material fiscal and regulatory headwinds in Bangladesh and Australia – roughly a c.-1% drag on revenue and c.-2% on adjusted profit from operations growth as previously guided.
Translation: the core cigarette franchise is holding up where it matters to cash, with targeted reinvestment into the higher-return smoke-free lines.
Operating cash conversion above 95% in FY25 signals disciplined working capital and capex control. Net finance costs are guided at c.£1.8 billion and capex at c.£650 million. Despite FX headwinds (c.3% on adjusted profit from operations and c.4% on adjusted diluted EPS), BAT expects leverage to land within 2.0-2.5x by end 2026.
On capital returns, the £1.3 billion FY26 buy-back sits alongside progressive dividends. That is a clear vote of confidence in cash generation and the balance sheet trajectory.
Positives: U.S. momentum, Velo Plus profitability, and improving Vuse trends as enforcement ramps up. Cash generation remains excellent, and the step-up to a £1.3 billion buy-back next year underlines management’s confidence.
Negatives: APMEA headwinds persist, heated products lost share during the pivot to glo Hilo, and FX will bite FY25 reported results. Vuse still posts a high-single digit revenue decline for the year, and management guides 2026 to the lower end of its algorithm ranges.
Net-net, this is a pragmatic update. BAT is executing through a choppy market, prioritising profitable growth, and returning substantial cash to shareholders. If U.S. illicit vapour pressure continues to ease and Hilo’s premium push lands, 2026 could look cleaner than today’s cautious framing suggests.
Bottom line: a solid, confidence-building set of messages with a meaningful buy-back kicker. Not flashy, but clearly moving in the right direction.
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