British American Tobacco shares slide as cigarette volumes decline

British American Tobacco suffered a fall in share price in early morning trading, as investors opted to take profits despite updated revenue growth for the full financial year.

Shares slipped 2.9 per cent to 4,447.3p, as investors ignored growth in its new category business and US momentum for declining cigarette volumes.

Global cigarette industry volume is expected to be down 2.5 per cent in the 2026 financial year, up from the prior expectation of two per cent, with analysts noting growing pressure on traditional products.

Richard Hunter, head of markets at Interactive Investor, said: “The update confirms both the perils and yet the robust profitability of the tobacco industry, as BATS continues to weave between the hurdles which it faces.

“On the one hand, the pressure on traditional tobacco products has been in evidence for some considerable time, driven both by changing lifestyle habits as well as increasing regulation.

“There have been several instances of governments toughening their stance on tobacco sales, especially to youngsters, which adds to the burden of regulatory censure which has plagued the sector over recent years.

“In addition, and quite apart from this general decline in traditional tobacco products sales as health issues come to the fore, there is a reluctance among some investors to invest in the sector at all on ethical grounds.”

US growth

Despite troubles surrounding traditional tobacco, the FTSE 100 group confirmed it is on track to meet its full-year guidance, while also raising its forecast for alternative products, such as vapes, to the mid-teens.

It reaffirmed its 2026 ​guidance for performance at the lower end ​of three to five per cent revenue growth and four to six per cent adjusted operating profit growth.

The company credited the rise to combustibles, modern oral and vapour products in particular, which caused a surge in US sales, with the company also preparing to launch new products as the country looks to crackdown on unauthorised products.

The Lucky ​Strike cigarette maker has also been betting on its ⁠Vuse vapes and Velo nicotine pouches to drive growth, but the requirement for manufacturers to obtain a licence from the Food ​and Drug Administration before selling new products has constrained sales in its largest market.

But the group saw weakness in its heated tobacco arm, following “material inventory movements in Japan alongside significant competitive intensity in the value segment”.

Cash generation and unflattering results

Analysts remain optimistic despite the problems caused by declining tobacco sales, noting that the group has “a clearer map beyond cigarettes”.

Alex Pugh, investment writer at Freetrade, said: “Fewer people are smoking, but BAT is still highly cash generative. 

The business is promising a progressive dividend, £1.3bn of buybacks this year and leverage back within target by year-end. The US is doing much of the heavy lifting.”

But, Adam Vesette, market analyst at Etoro, noted that the “market has honed in on the less flattering bits” leaving some investors ready to take profits.

He said: “A faster… decline in global cigarette volumes and continued weakness in heated tobacco. With profits still weighted towards H2 and some FX headwinds, investors appear to be taking profits after a decent run.

“Income investors could view today’s weakness as a chance to top up rather than a reason to sell.”