British American Tobacco has run out of puff

Investors have taken profits on the tobacco stock and switched into higher risk names

Having been as high as £36.28 in June 2022, shares in British American Tobacco (BATS) have subsequently run out of puff. They have fallen 16.5% to £30.31 since last summer’s peak and down 8.3% in 2023-to-date.

This reverse reflects profittaking as well as a wider investor sentiment switch from ‘risk-off’ to ‘risk-on’, with many high-quality and defensive dividend payers that found favour in 2022 such as British American Tobacco ditched for riskier stocks, often lowerquality cyclical names.

In its second half trading update (8 December 2022), British American Tobacco confirmed it was on track to hit 2022 guidance and also highlighted a robust showing for its ‘New Category’ business, i.e. vaping and e-cigarettes, which continued to enjoy strong volume, revenue and market share growth.

The FTSE 100 giant behind brands including Dunhill and Lucky Strike also said it was confident its cigarette brands would prove resilient across Asia-Pacific, the Middle East, the Americas, Africa and Europe. In the US however, in the group’s portfolio.

Jefferies analyst Chloe Lemarie commented: ‘We would welcome further restructuring announcements and especially a tighter focus on investment as the group R&D spend has remained elevated since 2014 despite the lack of meaningful opportunities within its Civil (aerospace) business.’ volumes are under pressure thanks to macro-economic factors and a post-Covid ‘normalisation’ of consumption patterns. [JC]