London, April 25, 2026, 17:06 BST
British American Tobacco p.l.c. shares rose on Friday after Morgan Stanley double-upgraded the stock to overweight and called the company its top pick in European tobacco, giving fresh support to a trade built on cash generation rather than volume growth. Overweight is broker shorthand for expecting a stock to outperform a benchmark or peer group.
The move matters because investors are again weighing whether BAT’s cash returns can offset the long decline in cigarettes and tighter rules around nicotine products. BAT was quoted at 4,302 pence late Friday, up 1.97%, among the FTSE 100’s stronger names while the index fell 0.75%.
Morgan Stanley raised its price target to 4,900p from 3,050p and said it was constructive on tobacco within European staples despite “structural declines in combustibles”; combustibles is industry jargon for cigarettes and other burnable tobacco. The bank cited the category’s defensive profile, lower earnings dispersion, strong cash generation and an undemanding valuation. London South East
The call also redrew the peer map. Morgan Stanley cut Imperial Brands, BAT’s closest UK-listed tobacco rival, to equalweight and trimmed its price target to 3,050p from 3,200p, according to market reports on the broker note.
BAT has kept capital returns near the centre of the story. A regulatory notice on Wednesday showed the company had entered an agreement with Merrill Lynch to buy ordinary shares from April 23 through June 29 under a buyback programme first announced in March 2024 and extended in December.
Management has not sounded euphoric. Chief Executive Tadeu Marroco told Reuters in December that about 70% of the U.S. vape market remained unregulated, adding: “I’m trying to be cautious for 2026.” BAT expected 2026 revenue growth at the lower end of its mid-term 3%-5% target and adjusted operating profit growth within a 4%-6% range. Reuters
There is still growth in the shift away from cigarettes. BAT said in February its Velo nicotine pouch had gained U.S. market share and that sales of newer products picked up, while interim finance chief Javed Iqbal said an AI-driven productivity plan would affect staffing levels. “It will have an impact on the size of the organisation,” he said, though he added it was too early to give numbers. Reuters
But the downside case is not theoretical. UK lawmakers approved a Tobacco and Vapes Bill on April 22 that raises the legal buying age for tobacco by one year every year for people born on or after Jan. 1, 2009, and also tightens controls on vaping, nicotine products, advertising, displays, free distribution and discounting; the measure still awaits royal assent.
That leaves BAT in a familiar bind. The company can use pricing, buybacks and nicotine pouches to protect earnings, but rules that shrink future cigarette buyers and restrict vape marketing could slow the path to replacing the old profit pool.
For now, Morgan Stanley’s upgrade gave the shares a lift in a falling market. The bigger test is whether BAT can show that Vuse and Velo can grow fast enough without the heavy profit cushion of cigarettes.
