British American Tobacco: Navigating Leadership Transition with Next-Gen Momentum

The departure of Luc Jobin, British American Tobacco's (BAT) chairman, by mid-2026 marks a pivotal moment for one of the world's largest tobacco firms. While Jobin's exit is a routine consequence of UK corporate governance rules—not a sign of instability—the transition underscores BAT's need to solidify its strategic pivot toward nicotine alternatives and sustainability. For investors, this leadership shift presents a critical juncture to assess whether BAT's next-gen products, such as its nicotine pouch brand Velo, can sustain growth amid regulatory hurdles and a declining combustible cigarette market. Here's why the stock could be worth considering ahead of 2026.

Strategic Momentum: Next-Gen Products as the New Engine

BAT's recent performance highlights the success of its shift from traditional cigarettes. First-half revenue growth, driven by Velo and other reduced-risk products, has already surpassed expectations. In the U.S., Velo's market share in the nicotine pouch segment rose to 45% in Q1 2025, while brands like Natural American Spirit maintained resilience in the non-discount cigarette market. Crucially, BAT's next-gen sales now account for over 30% of total revenue, up from 20% in 2020. This transition is not just about diversification—it's about redefining BAT's value proposition in a world where combustible tobacco sales are declining.

The search for Jobin's successor, expected to conclude by early 2026, offers an opportunity to accelerate this shift. A new chairman with deep expertise in consumer tech or health innovation could strengthen BAT's product pipeline and regulatory engagement. For instance, a leader with experience in navigating FDA approvals could help mitigate risks like the recent denial of certain Vuse products in the U.S., which BAT is appealing.

Sustainability and Innovation: Beyond Nicotine

BAT's commitment to sustainability isn't just a PR exercise. The £30 million Innovation Centre in Southampton, launched in 2024, focuses on R&D for next-gen products and carbon reduction technologies. Partnerships, such as its collaboration with McLaren Racing to explore sustainable materials, signal a broader strategic vision. Meanwhile, its cannabis ventures—like its 16% stake in Canadian firm Organigram—add diversification, though these remain smaller contributors to earnings.

BAT's share price has fluctuated between £16 and £20 since 2023, reflecting broader market volatility and regulatory uncertainty. However, its trailing P/E ratio of 18.5x remains reasonable compared to peers like Philip Morris International (P/E 22x), suggesting undervaluation if next-gen growth continues.

Regulatory Risks and Market Resilience

While BAT's next-gen products are gaining traction, regulatory headwinds persist. The FDA's rejection of certain Vuse products highlights the challenges of navigating inconsistent global regulations. However, BAT's advocacy for “harm reduction” frameworks—positioning nicotine alternatives as safer than cigarettes—is key to long-term success. Investors should monitor how the new leadership addresses these regulatory battles and expands into markets like the EU, where Velo's sales grew by 30% in 2024.

Investment Thesis: A Buying Opportunity Ahead of Transition?

BAT's valuation offers a compelling entry point for long-term investors. With a dividend yield of 5.8%, it provides income stability while the company transitions. The stock's price-to-sales ratio of 1.1x also suggests it's undervalued relative to its next-gen growth trajectory.

Historically, a short-term strategy of buying BAT on earnings announcement dates and holding for 20 days has proven risky. Over the 2020–2025 period, such a strategy delivered a -63.45% return, far below the benchmark's 108.26% gain, with a maximum drawdown of -85.01% and volatile swings (68.28% standard deviation). This underscores the importance of a long-term perspective: fleeting earnings reactions have historically amplified downside risks, while BAT's fundamental shift to next-gen products requires patience.

The leadership transition creates a short-term overhang, but the board's proactive search for a successor—and the company's strong financial discipline—mitigate risks. A new chairman could also unlock shareholder value by sharpening focus on high-margin next-gen products or divesting underperforming assets.

Final Verdict

BAT's shift to next-gen products is real and accelerating. While regulatory and macroeconomic risks linger, the stock's valuation and dividend make it a prudent bet for investors willing to look beyond 2026. The leadership transition, far from a threat, could catalyze the next phase of growth. For now, BAT remains a hold with buy potential if the new chairman delivers clarity on strategic priorities by early 2026.

Consider BAT if you believe in the long-term viability of nicotine alternatives and the company's ability to navigate regulatory landscapes. Position sizes should reflect the sector's inherent risks.