22. British American Tobacco Plc
Smoking Out Profits
A global giant headquartered in London, British American Tobacco Plc (BAT) dominates the tobacco industry while expanding into alternative products to adapt to changing consumer habits. Operating in the tobacco and nicotine products sector, the company sells cigarettes, vaping devices, and other nicotine alternatives across more than 180 countries, balancing traditional revenue with a push towards a smokeless future.
BAT’s primary revenue comes from selling combustible tobacco products, like cigarettes and roll-your-own tobacco, under well-known brands such as Dunhill, Lucky Strike, and Rothmans. In 2024, combustibles still made up the lion’s share of its £25.2 billion revenue, despite a 7.2% volume decline, driven by price increases and a growing illicit trade. The company also earns through its “New Categories” division, which includes vaping products (Vuse), heated tobacco (Glo), and oral nicotine pouches (Velo). These alternatives grew 18% in 2024, contributing £3.5 billion, as BAT aims for 50% of revenue from non-combustibles by 2035. Additionally, BAT generates income from its 29% stake in ITC Limited, an Indian conglomerate, which added £1.6 billion in dividends in 2024.
Strategically, BAT is navigating a shifting landscape. It sold a 3.5% stake in ITC for £1.5 billion in 2024 to reduce debt, which stood at £36.7 billion, and is exploring further divestitures to fund its transformation. The company employs 50,000 people worldwide and reported an operating profit of £9.4 billion in 2024, down 3.8% due to economic pressures and a one-off impairment charge. Regulatory challenges loom large – the UK’s Tobacco and Vapes Bill, advancing in 2025, aims to create a “smokefree generation” by banning cigarette sales to anyone born after 2009, potentially impacting future sales. BAT has also faced legal scrutiny, with a Canadian court upholding a £9 billion claim in 2024 for health-related damages, though the company is appealing.
BAT’s scale and global reach provide resilience, but it must balance declining cigarette volumes with growth in new categories. Its focus on innovation – like launching Vuse Go 2.0 in 2025 – and sustainability efforts, such as reducing Scope 1 and 2 emissions by 40% since 2020, aim to secure its future in a heavily regulated industry.
There is little point further analysing British American Tobacco. It is so big and well known that everything worth knowing is known. Occasionally it looks cheap and it carries a high dividend yield, but with a shrinking market, growth in the long-term is going to be fiendishly difficult to come by. Without growth, meaningfully high returns on a predictable timescale are unlikely.
