Russia and vaping in the spotlight as Pall Mall maker BAT to update shareholders

Shareholders will be checking for any update on British American Tobacco’s Russian exit as it reports on its progress so far this year.

The business is set to update shareholders on Thursday June 9, months after the Kremlin launched an unprovoked further invasion of Ukraine.

Having lingered for a while after the conflict started, BAT announced in March that it would withdraw from Russia.

The company makes Pall Mall cigarettes and had a market share of around 25% in Russia.

It is looking for someone to sell its Russian business to, so any update will be of interest to shareholders.

They will also be looking for any impacts that the company sees from the cost-of-living crisis.

It is lucky in a way because of its defensive nature. It is one of many companies in London which performs well even if the economy is in a rut.

Just like medicines and food sold by companies like AstraZeneca and Unilever which are listed in London, people keep on buying cigarettes even during a downturn.

But while sales might not face much of a hit, the company will still be wary about what it is paying to make its products. Raw material and labour costs have spiked in recent months.

It could pass these extra costs on to consumers.

Oddly, the company is also helped if it wants to do this by the tax burden on cigarettes.

Most of the cost of a packet is tax, so even if BAT passes on all its extra costs to buyers it will result in a much smaller percentage increase for products with less tax on them.

“Tobacco is a shrinking industry so the most important thing for British American Tobacco is that the group’s squeezing every last pound out of its dwindling customer base,” said Hargreaves Lansdown equity analyst Laura Hoy.

“This is nothing new for BAT’s investors, though inflation could exacerbate this. To that end margins will be the figure to watch as investors look for evidence of whether rising commodity costs are starting to eat into profits.

“Cigarette prices are mostly made up of taxes, though, so rising input costs may not make them all that more expensive for consumers.”

When they pick up the trading update on Thursday many investors will search for information on the New Categories business.

This is, BAT hopes, the company’s future. It built its business on tobacco, but in recent years it has been on a pivot towards different products.

They include a line of vapes, Vuse, which by one measure is the largest in the world, under-lip nicotine pouches called Velo, and heated tobacco products Glo.

Last year these products generated more than £2 billion in revenue, and this is meant to have more than doubled in just a couple of years, according to BAT’s targets.

“New Categories, which offers smokeless options, is the future so it’ll be worth watching as well.

“The division’s seen delivering £5 billion in revenue by 2025 so we’d like to see that it’s on track to achieving that goal.

“This part of the business is still just a small part of the whole, and with people growing more health-conscious it’s important the group cement its place in the market for alternative tobacco products.”