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British American Tobacco joins FTSE share buyback bonanza with £2 billion return

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BAT said today it would spend £2 billion buying up its own shares. The buyback will start on Monday and run until the end of the year.

The company follows BP, Shell and Unilever in announcing multi-billion pound buybacks in recent weeks. London-listed companies have now announced buybacks totalling more than £15 billion so far in 2022, according to stockbroker AJ Bell. That puts the market on track to eclipse last year’s total of £23.2 billion.

Buybacks put money in the pockets of selling shareholders and push up the value of stock still in the market by restricting supply.

BAT’s announcement came as the company reported good progress on its strategy of shifting away from cigarettes. Like most tobacco companies, BAT is pushing new products such as vaping and tobacco heating pens as smoking declines. BAT is targeting £5 billion in sales from these “new categories” by 2025.

It said today that sales from this division jumped 50% last year to reach £2.1 billion. Some 18.3 million people used products like its Vuse vape pens and Glo tobacco heaters in 2021. Losses at the new categories division reduced for the first time since it was set up, falling by £100 million. Richard Hunter at Interactive Investor said: “Significant investment into these new categories is beginning to show meaningful results.”

Across BAT, revenues rose 6.9% to £25 billion when exchange rate movements were stripped out. Profits improved 5.2% to £11.1 billion. CEO Jack Bowles called it a “pivotal year” and said BAT was on track to reach its 2025 goal.

The dividend ­— which has risen every year since 1999 — was increased by 1% to 217.8p, alongside the buyback.

Shares rose 13p, or 0.4%, to 3282p.

The buyback boom is good for investors but will drawn the ire of some politicians and campaigners. The cash used to fund buybacks could otherwise go towards investment — or, as some argue in the case of oil giants, a windfall tax. Boris Johnson is pushing for what he has called an investment “big bang” to help power the UK’s economic recovery from the pandemic and wants businesses to spend more on investment.

Not all shareholders approve of buybacks either.

Neil Wilson, an analyst at Markets.com, said this week: “You worry that buybacks are just a screen for a lack of strategy. Investors want to see more of a deliberate attempt to unlock value.”

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