British American Tobacco (NYSE:BTI) is one of the best value stocks to buy now. On February 12, British American Tobacco reported its full-year 2025 earnings report, which was marked by a 2.1% increase in group revenue and 3.4% rise in adjusted profit, driven by a resilient performance in traditional combustibles and an acceleration in New Categories. The company added 4.7 million smokeless consumers, bringing its total to 34.1 million, and remains on track to deliver more than £50 billion in free cash flo ...

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Core Viewpoint - British American Tobacco (BAT) is focusing on a smoke-free future while achieving solid organic growth and strong shareholder returns [2] Group 1: Company Performance - BAT has demonstrated strong momentum in new product categories and effective management of its combustible portfolio [2] - The company has generated significant free cash flow, enabling it to return substantial cash to shareholders through dividends and share buybacks [2] Group 2: Leadership and Sponsorship - Tadeu Marroco, CEO, and David Waterfield, President of Reynolds American, represented BAT at the CAGNY event [1] - BAT sponsored the lunch following their presentation, indicating their commitment to engaging with stakeholders [1]

Summary of British American Tobacco (BAT) 2026 Conference Call Company Overview - **Company**: British American Tobacco (NYSE: BTI) - **Event**: 2026 Conference Call held on February 18, 2026 - **Key Speakers**: Tadeu Marroco (CEO), David Waterfield (President of Reynolds American) Core Industry Insights - **Transformation Goal**: BAT aims to become predominantly smokeless by 2035, focusing on a smoke-free future while maintaining organic growth and shareholder returns [2][3] - **Market Growth**: The nicotine industry is projected to grow at a 4% CAGR over the next five years, driven by double-digit growth in new categories like nicotine pouches, which are expected to nearly triple in revenue by 2030 [3][4] - **Consumer Behavior**: There is a significant shift as smokers transition to less risky alternatives, with polyuse (using multiple nicotine products) doubling over the last five years [4][5] Financial Performance - **Cash Flow**: BAT has generated strong free cash flow, allowing for substantial shareholder returns through dividends and share buybacks [1] - **Revenue Growth Targets**: BAT aims for 3%-5% revenue growth, 4%-6% adjusted profit from operations growth, and 5%-8% adjusted diluted EPS growth in the midterm [25] Product Categories - **Nicotine Pouches**: Fastest-growing category, with VELO being a leading brand. VELO's consumer numbers, volume, and revenue have tripled over the last three years [9][11] - **Vapor Products**: Vuse is the global leader with a 39% market share, and the category is expected to grow significantly as regulatory environments improve [13][14] - **Heated Products**: The glo product line is positioned in a growing market, with a focus on premium segments [15][16] Regulatory Environment - **Regulatory Progress**: There are now 24 countries with regulatory frameworks for nicotine pouches, up from 4 in 2022. The FDA has initiated a pilot program to expedite the approval process for nicotine pouches [12][38] - **Enforcement Actions**: Increased enforcement against illegal products is crucial for the vapor market, with significant progress noted in 2025 [37][38] U.S. Market Focus - **U.S. Strategy**: The U.S. is a cornerstone of BAT's strategy, with Reynolds American positioned to capitalize on the evolving market. The U.S. nicotine revenue pool is projected to grow above a 4% CAGR through 2030 [26][28] - **Investment Commitment**: BAT is committing GBP 2.5 billion by 2030 to support U.S. growth, which is expected to create over 2,000 jobs [30][31] Competitive Positioning - **Market Leadership**: Reynolds is the number one choice for adult nicotine consumers, with nearly 22 million users. The company has seen growth in all product categories, particularly in smokeless and new categories [32][33] - **Value Share Growth**: Reynolds has increased its total nicotine volume share by over 100 basis points from December 2024 to December 2025, with significant contributions from smokeless categories [33][34] Conclusion - **Sustainable Value Creation**: BAT is focused on delivering sustainable value while preparing for future growth through a balanced portfolio of combustibles and new categories [42][43] - **Future Outlook**: The company is well-positioned to lead in the U.S. nicotine market, leveraging its multi-category portfolio and commitment to innovation and regulatory engagement [43][44]

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Illicit Trade and Market Impact - Illicit trade poses a significant threat to the legitimate tobacco industry, impacting brand equity and operational costs, and may lead to substantial fines due to product diversion into illicit channels [25][26][27]. - The Group faces risks from declining consumption of legitimate tobacco products, with market contraction and growth of illicit trade impacting sales volumes and pricing [184]. Geopolitical and Economic Risks - Geopolitical tensions can disrupt operations and financial conditions, leading to increased costs and potential loss of access to markets, as seen in recent conflicts in Sudan and Ukraine [28][29][53]. - The Group has experienced higher costs due to inflation and increased raw material prices, which may negatively affect profitability if price increases cannot be passed on to consumers [43][46][47]. - The availability and price volatility of raw materials can lead to supply shortages and increased costs, impacting the Group's financial condition [43][45]. - Rising interest rates could impact the Group's existing floating rate debt and future refinancings, with central banks' actions remaining data dependent [190]. Supply Chain and Operational Disruptions - The New Categories supply chain is complex and vulnerable to political and economic issues, which may result in product recalls and regulatory challenges, such as the ban on menthol products in California [37][38][40]. - Disruptions in the supply chain can arise from various factors, including cyber events and natural disasters, which may affect manufacturing and distribution capabilities [52][54]. - Operational disruptions and inaccurate demand forecasting may lead to product shortages or excess inventory, affecting the Group's financial performance [204]. Regulatory and Compliance Challenges - Regulatory measures, including restrictions on product ingredients and advertising, may significantly affect the Group's ability to market and sell its products [92]. - The FDA's proposed ban on menthol cigarettes could have a substantial negative impact on sales volumes, particularly for the Newport brand, which is a significant contributor to total net sales [111]. - The Group is subject to evolving regulations regarding smokeless products, which may hinder its ability to compete and innovate in the market [112]. - The EU's Directive on single-use plastics will impose Extended Producer Responsibility (EPR) obligations on the Group, affecting costs related to environmental compliance [116]. - The Group is exposed to litigation and regulatory actions related to its tobacco and nicotine products, with claims potentially amounting to tens or hundreds of billions in sterling [123]. - Non-compliance with climate change legislation may reduce the Group's ability to attract investors and result in reputational damage [74]. Financial Performance and Market Conditions - The Group's financial performance may be impacted by increased costs and volatility in commodity prices and international trade policies [178]. - Significant increases in tobacco and nicotine-related taxes are anticipated, which could adversely affect pricing, sales volume, and profit margins for the Group's products [126]. - The Group's consolidated financial position may be materially affected by unfavorable outcomes in ongoing litigation, which could lead to substantial liabilities and operational disruptions [125]. - The Group's funding and liquidity risks are heightened by potential difficulties in accessing bank financing and capital markets, which may adversely affect credit ratings and increase funding costs [189]. Sustainability and Transformation Initiatives - Retaining key personnel is critical for the Group's transformation; failure to do so may result in vacant critical positions and hinder the achievement of sustainability ambitions [48][50][51]. - The Group's sustainability commitments may restrict sourcing options, potentially leading to higher tobacco prices and increased raw material costs [61]. - The Group's transformation initiatives aim to improve profitability and productivity but face risks from complexity and resistance to change [64]. Intellectual Property and Brand Management - The Group is exposed to risks related to intellectual property rights, which are crucial for protecting its brand and innovations [215]. - The Group may face adverse effects on market share and financial condition due to potential erosion of brand value and failure to protect intellectual property rights [219]. - The Group's brands and trademarks are licensed for fixed periods, and termination or non-renewal of these licenses could adversely affect product sales [218]. Consumer Behavior and Market Adaptation - The Group's inability to adapt its product portfolio to changing consumer expectations regarding sustainability may lead to reduced demand and reputational damage [78]. - The inability to predict consumer behavior and launch innovative products could result in missed opportunities and loss of competitive advantage [212]. Cybersecurity and Data Privacy Risks - The Group's digital ecosystem is under constant threat from cyberattacks, which could lead to significant reputational and financial impacts if not managed properly [32][34][36]. - Non-compliance with data privacy laws could result in fines up to €20 million or 4% of the Group's worldwide annual revenue, whichever is higher [172]. - The Group's operations may be adversely affected by the loss or misuse of personal data, leading to reputational damage and legal liabilities [171].

Investment Rating - The industry investment rating is "Positive" [2] Core Insights - The report highlights that major overseas tobacco companies, British American Tobacco and Japan Tobacco, have released their annual reports, indicating a slowdown in the market share growth of PLOOM and an acceleration in the iteration of new products by British American Tobacco [2] - British American Tobacco reported a revenue of £13.54 billion for the second half of 2025, a year-on-year increase of 0.1%, with new products contributing £1.97 billion, representing a 10.6% increase and accounting for 14.5% of total revenue [2] - Japan Tobacco's revenue for the fourth quarter of 2025 was ¥833.6 billion, a year-on-year increase of 10.2%, with new products generating ¥3.12 billion, a 34.5% increase, and accounting for 3.7% of total revenue [2] Summary by Sections British American Tobacco - The company experienced accelerated growth in new products in the second half of 2025, with revenue from vapor products decreasing by 5.5% year-on-year but increasing by 9.2% quarter-on-quarter [3] - The heat-not-burn (HNB) segment saw a revenue decline of 2.1% year-on-year, but the premium series HILO's increased market share helped maintain price levels [3] - Revenue from oral tobacco reached £700 million in the second half of 2025, with a significant year-on-year increase of 54.8%, driven by the nationwide launch of VELO PLUS [3] Japan Tobacco - Japan Tobacco's new product sales reached 3.9 billion units in the fourth quarter of 2025, a year-on-year increase of 30.0%, with HNB sales at 3.2 billion units, up 40.7% [4] - The market share of PLOOM in Japan was 15.7% in the fourth quarter of 2025, showing a slowdown in growth compared to previous quarters [4] - The company is expanding its global market presence, with new product launches in 19 countries as of February 2026 [4] Product Optimization and Global Expansion - Both British American Tobacco and Japan Tobacco plan to accelerate the global expansion of new products in 2026, despite anticipated intense competition in other regions [5] - Innovations in product features and differentiated consumption experiences are expected to enhance industry penetration rates [5] - British American Tobacco is set to launch a new HYPER device in the second quarter of 2026, which promises improved performance and user experience [5]

Investment Rating - The investment rating for the new tobacco industry is "Positive" and maintained [8] Core Insights - British American Tobacco achieved total revenue of £25.61 billion in FY2025, a year-on-year decrease of 1.0% (an increase of 2.1% year-on-year at constant exchange rates). Revenue from new tobacco products reached £3.62 billion, a year-on-year increase of 5.5% (7.0% at constant exchange rates), accounting for 14.1% of total revenue, an increase of 0.9 percentage points year-on-year. In H2 2025, revenue from new tobacco products was £1.97 billion, a year-on-year increase of 10.6%, with a revenue share of 14.5% [2][6] Summary by Relevant Sections Traditional Tobacco Trends - The decline in traditional tobacco is evident, with a forecasted global cigarette volume decline of approximately 2% in 2026. New tobacco products are expected to be the core growth engine, with projected low double-digit growth in revenue for 2026 [6] Product Categories - **Heated Not Burned (HNB)**: Revenue for HNB products decreased by 0.7% year-on-year (an increase of 1.0% at constant exchange rates). The decline in cigarette sales was 3.7% year-on-year, primarily due to intensified market competition and resource allocation issues related to the early launch of Glo Hilo. Glo's global market share decreased by 1.5 percentage points to 14.9% [6] - **Oral Tobacco**: The modern oral tobacco segment saw a revenue increase of 47.4% year-on-year (48.0% at constant exchange rates). The market share for all oral products and new oral tobacco increased by 5.8 and 7.5 percentage points to 17.1% and 33.4%, respectively [6] - **Vaping Products**: Revenue from vaping products decreased by 10.4% year-on-year (8.6% at constant exchange rates). The decline in sales was 12.6% year-on-year, mainly due to illegal products in the U.S. and Canada, as well as regulatory changes in some European countries. Vuse maintained its global leadership with a market share increase of 0.6 percentage points to 38.8% [6] Investment Perspective - With the acceleration of the global new tobacco process, companies with core barriers or resource positioning in the industry present investment opportunities. Key focuses include four major international tobacco companies and two product categories (HNB and oral tobacco). Specific investment targets include Smoore International for HNB and vaping, and China National Tobacco for long-term positioning [6]