BAT shares climb as first-half results fuel US optimism
H1 adjusted EPS 169.3 pence vs forecast 165.91 pence
US market tough, but starting to recover share - CEO
Shares rise almost 3% to hit 10 month high
Rewrites paragraph 1 with shares; adds investor comments in 10-12; shares in 14
By Emma Rumney
LONDON, July 25 (Reuters) -British American Tobacco (BAT) BATS.L shares rose almost 3% in early Thursday trade as it beat first-half profit forecasts and investors latched on to some positives at its key U.S. business.
The maker of Lucky Strike and Dunhill cigarettes made over 40% of its revenues in the United States in 2023, mostly from tobacco, though it is also trying to grow income from smoking alternatives.
But the company has struggled in this key market as under-pressure consumers have been swapping from its more expensive cigarette brands to cheaper alternatives or e-cigarettes.
BAT's e-cigarettes have lost share to a flood of illegal disposable vapes.
Chief Executive Tadeu Marroco said it had started to recover U.S. market share, but its business and consumers remained under pressure.
"I don't expect any major shift happening in 2024," he said of U.S. consumer behaviour in a difficult economy.
The company is unlikely to meet its ambition to raise 5 billion pounds ($6.4 billion) in revenue from smoking alternatives by 2025 given the United States is a key growth driver, he said.
Tobacco investors see companies' ability to transition their businesses away from cigarettes and towards alternatives as critical amid ever-stricter regulation and falling smoking rates in some markets.
Rival Philip Morris International (PMI) PM.N is more advanced with such efforts. PMI raised its profit forecast on Tuesday, partly on expected growth in its alternative products.
While the U.S. market was still difficult for BAT, investors welcomed some green shoots.
Anthony Sedgwick, co-founder of BAT investor Abax Investments, pointed to its recovering cigarette market share and strong performance in nicotine pouches in the United States, where PMI's product currently dominates.
BAT's smoking alternatives business also became more profitable in the first half, and grew revenues ahead of expectations, said Thishan Govender, equity analyst at Truffle Asset Management, another BAT investor.
BAT posted adjusted diluted earnings for the six months to June 30 of 169.3 pence per share, against analyst expectations of 165.91 pence.
Its shares rose 2.9% to hit a 10-month high before paring gains to stand 1.9% higher at 0935 GMT.
($1 = 0.7765 pounds)
Reporting by Emma Rumney; Editing by David Goodman and Mark Potter
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