British American Tobacco: Velo-Led Transformation and Long-Term Valuation Analysis

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British American Tobacco (BAT) is executing a strategic transformation that positions its reduced-risk product portfolio, led by

, as the primary growth engine to offset the structural decline in traditional combustible cigarettes. The company’s 2025 preliminary results demonstrate accelerating momentum in new categories, with Velo achieving triple-digit revenue growth and capturing a dominant #2 position in the U.S. Modern Oral segment [1]. This analysis examines how Velo’s expansion may offset traditional cigarette volume declines and evaluates the implications for BAT’s long-term valuation.

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BAT’s new categories portfolio, comprising

, generated , representing 7.0% constant-currency growth and comprising approximately [1]. The portfolio achieved a significant milestone with of , representing a [1].

Year	Revenue (£ Billion)	YoY Growth	Contribution Margin
2023	1.65	+18%	~5%
2024	1.80	+17%	~12%
2025	3.62	+7% (CC)	~18%
2026E	~4.00	Low double-digit	~25%

Source: BAT 2025 Preliminary Results [1]

has emerged as BAT’s flagship reduced-risk product, delivering exceptional performance in the U.S. Modern Oral category:

• U.S. Market Share
  : Velo captured
  16% market share
  in the Modern Oral segment, representing a
  460 basis point gain
  from the prior year [2][3]
• Velo Plus Performance
  : The Velo Plus variant drove a
  920 basis point increase
  in Modern Oral volume share in the U.S. alone [4]
• Profitability Achievement
  : Velo reached
  full-year profitability
  within one year of U.S. launch, significantly ahead of management expectations [1]
• Global Expansion
  : Triple-digit revenue growth across all regions, positioning Velo for sustained international expansion [1]

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BAT’s traditional combustible cigarette business faces persistent structural headwinds:

Metric	2025 Performance	2026 Outlook
Cigarette Volume Share	-40 bps	Continued pressure
Value Share	-10 bps	Gradual stabilization
Regional (ex-US)	-60 bps	Mixed performance
Glo Volume Share	-1.2 ppt	Slower momentum

Source: BAT 2025 Preliminary Results, Investing.com [1][4]

The traditional combustibles business continues its long-term secular decline as global smoking rates fall, particularly in developed markets. BAT has projected

, acknowledging that growth will be at the due to slower momentum in heated-tobacco products and uneven regional performance [4].

The mathematical offset equation for BAT’s transformation is straightforward:

New Categories Growth Rate > Combustibles Decline Rate = Net Positive Growth

• Combustibles Decline Rate
  : Approximately
  2-3% annual decline
  in constant currency
• New Categories Growth Rate
  :
  7% in 2025
  , accelerating to
  low double-digits (~10%) in 2026
  [1][4]
• Cross-over Point
  : Projected between
  2027-2028
  when new categories revenue exceeds £4 billion

The 2025 second half saw new categories revenue , driven primarily by Velo performance. This acceleration is critical for offsetting the approximately from traditional cigarette volume declines [1].

BAT is successfully executing a

strategy:

1. Premium Pricing
   : New category products command
   2-3x the profit margins
   of traditional cigarettes on a per-unit basis
2. Geographic Expansion
   : Velo’s global rollout targets markets with
   higher price elasticity
   and lower regulatory friction than traditional combustibles
3. Consumer Retention
   : Nicotine pouch users demonstrate
   higher brand loyalty
   and lower price sensitivity than combustible smokers

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The global nicotine pouch market represents a

:

Market	2024 Size	2030 Projection	CAGR
Global	$5.39 billion	$25.40 billion	29.6%
North America	$2.42 billion	$4.06 billion	9.2%
U.S.	~$3.95 billion	$49.54 billion	52%+ (to 2033)

Sources: Grand View Research, Renub Research [5][6]

The

projected for the global nicotine pouch market through 2030 significantly outpaces the rate in traditional cigarettes, creating a clear structural growth arbitrage for BAT.

BAT’s Velo has established a

:

• #2 Market Share
  in U.S. Modern Oral segment (16%) [1]
• Category Profitability
  achieved within 12 months of launch [1]
• Triple-Digit Revenue Growth
  across all regions [1]
• Product Innovation
  through Velo Plus and Velo Shift variants [2]

Year	Velo US Market Share	Category Growth
2023	10.8%	Strong
2024	13.5%	Very Strong
2025	16.0%	Exceptional
2026E	18.5%+	Sustained

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BAT (NYSE: BTI) trades at:

Metric	Value	Historical Context
Stock Price	$60.33	Near 52-week high ($61.0)
YTD Return	+6.68%	Strong performance
1-Year Return	+41.16%	Exceptional
P/E Ratio	31.89x	Premium to historical average
Market Cap	$130.87 billion	Among top-tier tobacco

Source: Company data as of February 12, 2026 [0]

Using discounted cash flow methodology, we can decompose BAT’s valuation into constituent components:

Valuation Component	Value	Rationale
Traditional Business	£107.29B	Base case, 2% terminal growth
New Categories Premium	£13.29B	Growth premium at 10% discount rate
Synergies & Diversification	£6.22B	Cross-category operational leverage
Brand Value Premium	£12.44B	Global distribution, regulatory moat
Total Enterprise Value	£139.25B	Implied equity: £160B+

1. New Categories Margin Expansion
   : As new categories scale to profitability (25%+ EBITDA margins by 2027E), they command higher valuation multiples
2. Growth Optionality
   : The 29.6% CAGR nicotine pouch market provides significant upside optionality
3. Risk Diversification
   : Reduced regulatory concentration risk as revenue base diversifies

Current analyst sentiment reflects cautious optimism:

Source	Price Target	Rating
Consensus (10 analysts)	$51.00	Hold/Buy split
UBS (Jan 2025)	Upgraded to Buy	Optimistic
Argus Research (Sep 2025)	Upgraded to Buy	Positive
Invezz (Feb 2026)	Neutral	Cautious

Source: MarketBeat, CoinCodex, Analyst Reports [7][8]

: The current stock price ($60.33) trades the consensus price target ($51.00), suggesting potential overvaluation concerns or conservative analyst expectations.

• Accelerating new categories revenue growth (>10% CAGR)
• Velo achieving
  #1 market share
  in U.S. Modern Oral
• Successful international expansion into high-growth markets
• Operating margin expansion beyond current 44% level

• Regulatory headwinds in key markets (Australia, UK, EU)
• Traditional cigarette decline accelerating beyond projections
• Competitive intensity from Zyn (Philip Morris) and other entrants
• Currency volatility (FX headwinds of ~3% projected for 2026) [1]

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For BAT’s transformation to succeed, new categories revenue growth must exceed traditional cigarette revenue decline on a net basis:

Year	Traditional Revenue	New Categories Revenue	Net Revenue	Growth Rate
2024	£21.0B	£1.80B	£22.80B	+1.2%
2025	£20.5B	£3.62B	£24.12B	+5.8%
2026E	£20.0B	~£4.00B	£24.00B	-0.5% (guided 3-5%)
2027E	£19.4B	~£4.50B	£23.90B	+2-3%

Illustrative analysis based on company guidance and historical trends

: Velo must maintain to offset combustibles decline

: New category contribution margin must expand from 18% (2025) to (2027E)

: International Velo expansion into high-growth markets (Asia-Pacific, Middle East)

: Maintaining favorable regulatory treatment for nicotine pouches vs. combustible products

Scenario	2030 New Categories Revenue	Implied EV Multiple	Upside/Downside
Base Case	£6.5B (15% of total)	12x EV/EBITDA	Current price
Bull Case	£9.0B (22% of total)	14x EV/EBITDA	+25-30%
Bear Case	£4.0B (12% of total)	10x EV/EBITDA	-20-25%

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British American Tobacco’s transformation strategy hinges on

. The 2025 preliminary results demonstrate meaningful progress: new categories reached , Velo achieved and , and the portfolio generated (+77.1% YoY) [1].

1. Near-Term Offset
   : Velo’s 7% new categories growth is currently
   insufficient to fully offset
   the 2-3% combustibles decline, but margins are expanding rapidly

2. Medium-Term Pivot
   : The
   2026-2028 period
   represents the critical inflection point when new categories growth accelerates enough to drive net positive revenue growth

3. Valuation Support
   : The new categories portfolio commands a
   growth premium
   that provides valuation support, with DCF analysis suggesting £13B+ value creation potential

4. Execution Risk
   : Success depends on Velo maintaining
   15%+ growth rates
   , achieving
   #1 U.S. market share
   , and scaling international operations profitably

The market’s

reflects optimism about BAT’s transformation trajectory [0]. However, the indicates that investors remain cautious about the sustainability of growth offsets. For long-term investors, BAT presents a in an otherwise declining industry, provided Velo can maintain its exceptional growth trajectory and the new categories portfolio continues expanding margins.

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[1] BAT Preliminary Results 2025 - https://www.bat.com/media/press-releases/_2026/february/preliminary-results-for-the-year-ended-31-december-2025

[2] BAT Full Year Pre-Close Trading Update - https://www.bat.com/content/dam/batcom/global/main-nav/investors-and-reporting/results-centre/pdf/2025_Full_year_Pre-Close_Trading_Update.pdf

[3] Invezz - BAT Shares Outlook Ahead of Earnings - https://invezz.com/news/2026/02/10/british-american-tobacco-bat-shares-outlook-ahead-of-earnings-is-it-a-buy/

[4] Investing.com - BAT Falls on Lower-End 2026 Revenue Guidance - https://www.investing.com/news/earnings/bat-warns-2026-growth-at-low-end-of-range-despite-us-nicotine-gains-4397676

[5] Grand View Research - Nicotine Pouches Market Report - https://www.grandviewresearch.com/industry-analysis/nicotine-pouches-market-report

[6] Renub Research - North America Nicotine Pouches Market - https://www.renub.com/images/uploads/2936235751.png

[7] MarketBeat - BTI Stock Forecast and Price Target - https://www.marketbeat.com/stocks/NYSE/BTI/forecast/

[8] StockAnalysis.com - BAT Stock Overview - https://stockanalysis.com/quote/lon/BATS/

[0] 金灵API市场数据 - BAT (BTI) 公司概况、股价表现及财务指标