British American Tobacco (BATS) was one of the biggest fallers on the FTSE 100 on Tuesday after publishing its H1 2026 Pre-Close Trading Update, with shares dropping around 4% as investors weighed a worsening picture for traditional cigarettes against a stronger-than-expected performance from the group’s smokeless portfolio.
The headline upgrade was a lift to BAT’s New Category revenue forecasts. The group now expects mid-teens revenue growth from Velo nicotine pouches, Vuse vaping products and glo heated tobacco devices for both H1 and the full year, stepping up from a prior target of low double-digit growth.
Velo Plus was the standout performer, lifting BAT’s total Modern Oral volume share in the U.S. by 10.4 percentage points and delivering triple-digit revenue growth. U.S. vapes were described by Bank of America analyst Bastien Agaud as “the main positive” from the update.
The upgrade on smokeless wasn’t enough to move the broader guidance needle. Full-year revenue growth and adjusted operating profit were both maintained at the lower end of BAT’s medium-term ranges of 3-5% and 4-6% respectively – a level of caution that appeared to disappoint investors who had been hoping for an outright upgrade.
Combustible value share across BAT’s seven largest tobacco markets declined 20 basis points, while volume share fell 30 basis points, with U.S. consumers increasingly downtrading to cheaper products. BAT also revised its forecast for global cigarette industry volumes down to a 2.5% decline this year, steeper than the 2% it had previously guided.
Weak trading in Asia Pacific, the Middle East and Africa – where Bangladesh and Japan weighed on results – likely accounts for the absence of a full guidance upgrade, according to Agaud, even as BAT said performance in the region was stabilising. CEO Tadeu Marroco warned that higher fuel costs could squeeze consumer spending on discretionary products including cigarettes and nicotine alternatives.
New Categories still represent just 18.2% of group revenues, and BAT’s ambition to reach 50% by 2035 faces real execution risk as regulators increasingly target vaping alongside traditional tobacco.
For now, the group’s cash generation remains strong – adjusted pre-tax profit for H1 is expected to reach £4.76bn – and a forward dividend yield of around 5.4%, combined with a £1.3bn share buyback programme, continues to underpin the investment case.
Shares have gained around 32% over the past year, though the price remains roughly 17% below its 2017 peak.