Proactive Investors - After sinking to a 14-year low in recent weeks, British American Tobacco PLC (LON:BATS) claimed a boost ahead of its results next week as it struck a patent deal with Philip Morris (NYSE:PM) to resolve ongoing litigation over heated tobacco and vaping products.
The FTSE 100-listed cigarette maker, which makes the Lucky Strike, Camel and Rothmans brands as well as Vuse vaping and Glo tobacco-heating products, said the settlement was "the best path forward".
In November, as part of ongoing litigation between the two companies across Europe, the UK High Court revoked a BAT patent which covers heat-not-burn cigarette technology, with Philip Morris also denied an 'Arrow declaration' that would prevent future patent lawsuits.
As part of the settlement, non-monetary provisions were agreed, which BAT said resolve all ongoing patent infringement litigation and prevent future claims against current heated tobacco and vapour products.
Smokeless? Not without fire
BAT shares were up 1.4% to 2,373p on Friday.
In December, BAT cratered to lows just above £22, levels not seen since early 2011, after unveiling the board's ambition to become a predominantly “smokeless” business, with 50% of revenue from non-combustibles by 2035.
This came with a non-cash write-down of around £25 billion in 2023 relating to some of its acquired US combustibles brands.
2023 results and 2024 outlook
At the time, management confirmed full-year 2023 earnings guidance but said the impairment follows an assessment of the brand's carrying value and useful economic lives over an estimated period of 30 years, as it intended to amortise the remaining value of its US combustibles brands from January 2024.
Analysts at Jefferies said there was "little to be positive about" in the news, with 2023 cigarette volume share worsening in the second half of 2023, vape market share globally now seeing material pressure, and no improvement in heated share since the half year.
Looking at 2024, sales guidance was lowered, which the analysts said "raises questions around any possible vape acceleration in the US".
In the result, UBS analysts said the main things to watch out for are the US outlook, vapour dynamics with disposables uncertainty, heated tobacco innovation, dividend growth, de-leveraging plans (including ITC stake with 4% worth circa £2.15 billion), litigation settlement in Canada, and first-half guidance.