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British American Tobacco Beats Full-Year Profit Estimates, Signals ITC Stake Disposal

By Reuters
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British American Tobacco Beats Full-Year Profit Estimates, Signals ITC Stake Disposal

British American Tobacco forecast low-single digit organic revenue growth, adding it expected a slow recovery in the United States economy.

The maker of Dunhill and Lucky Strike cigarettes also reported a 5.2% rise in full-year profits, beating analyst expectations.

BAT's core cigarette business is grappling with falling smoking rates in some countries, in particular the US market, which accounts for a lot of its sales.

Tough Economy

US smokers are swapping to cheaper brands amid a tough economy or switching away altogether to alternatives such as vapes.

CEO Teadeu Marroco said its plans to revive performance in the United States were showing early signs of progress, and it was investing further.

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"We expect these investments, together with the US macro-economic pressures, will impact 2024," he said.

Its adjusted diluted earnings per share stood at £3.86 ($4.87), compared with a £3.76 consensus from analysts polled by the company.

ITC Stake Disposal

The company said it is 'actively working' to monetise some of its shareholding in India's ITC, which its shares up almost 5% as investors cheered a move towards resuming share buybacks.

Last year, it disappointed investors when it opted against a fresh buyback programme to focus on reducing debt and investing in new products.

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As a result, it has come under pressure to reduce its roughly 29% stake in ITC, an Indian consumer goods giant that makes a large portion of its revenue from cigarettes but also operates hotels, a paper business and more.

Such a stake sale would allow it to pay down debt and move faster towards the leverage range at which it could resume buybacks.

"We have been actively working for some time on completing the regulatory processes required to give us the flexibility to monetise some of our shareholding and will update you at the earliest opportunity," BAT chief executive Tadeu Marroco said in the company's results statement.

It marks the strongest signal yet that the company could dispose of some of its stake.

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"This would be a big positive ... bringing the all-important share buyback timeline closer for investors," RBC analyst James Edward Jones said in a note.

High dividends and share buybacks are a key element of the investment case in highly cash-generative tobacco companies.

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