BAT faces slow growth as U.S. vape battle intensifies

British American Tobacco (BAT) is promising progress, but its latest trading update shows a company caught between accelerating demand for nicotine alternatives and growing pressure on the fiercely contested U.S. vape market. Despite steady gains in 2025 and a renewed £1.3 billion share buy-back for next year, BAT now expects its 2026 results to hit only the bottom of its mid-term targets: a warning sign that competition and illicit products continue to undermine one of its most important growth engines.

BAT insists it is "on track" for 2025. Revenue and adjusted profit should grow by around 2%, with its New Categories - vaping, heated tobacco and modern oral pouches - rising at double-digit rates in the second half. The United States stands out as a bright spot: stronger cigarette performance and a surge in demand for Velo Plus nicotine pouches have boosted revenue and market share.

But the U.S. vape market remains BAT’s biggest headache. Even as Vuse, its flagship vaping brand, shows signs of recovery thanks to early enforcement actions against illicit imports, the category is still crowded with unregulated devices, many from China. That competition continues to "dampen profitability", BAT confirmed.

The company recently paused the rollout of an unauthorised disposable version of Vuse One in the U.S., underlining how uncertain the regulatory landscape remains. While BAT says enforcement is finally helping, the recovery is fragile.

Nicotine pouches surge while vaping stumbles

One area where BAT appears genuinely confident is modern oral nicotine. Velo has posted strong gains across key markets. In the U.S., Velo Plus has pushed BAT’s modern oral share up nearly 10 percentage points and is on track to reach profitability this year.

However, this success is offset by the struggles of Vuse in the U.S. and Canada. BAT expects its full-year vapour revenue to fall by a high single digit: a slight improvement from the first half but still a clear sign of a category wrestling with illicit supply and shifting regulation.

Heated tobacco also remains unresolved. BAT is rolling out its premium glo Hilo across Japan, Poland and Italy, but acknowledges that Japan, one of the world’s most profitable heated-tobacco markets, is intensely competitive.

Taken together, these trends reflect a company making progress in alternatives, but not yet at the pace needed to compensate for traditional cigarette decline.

Investors nervous as BAT lowers expectations for 2026

Markets reacted quickly to BAT’s guidance: the share price fell nearly 5% in early Tuesday trading. The warning was clear: the mid-term growth algorithm announced last year still stands, but performance in 2026 will likely land at the lower end of its 3–5% revenue and 4–6% adjusted profit targets.

BAT says it will continue to invest in its most profitable markets while working to strengthen enforcement against illicit vaping products. Cash flow remains a strong point, with operating cash conversion expected to exceed 95% again this year, giving the group the flexibility to reduce debt, maintain dividends and fund buy-backs.

Analysts surveyed by the company estimate around 2.1% revenue growth for 2025, roughly in line with BAT’s guidance, but still modest for a business betting billions on new nicotine technologies.