Fitch Ratings Upgrade#
Fitch Ratings has recently upgraded British American Tobacco plc’s (BAT) Long-Term Issuer Default Rating from 'BBB+' to 'A-'. This change reflects the company's strong business position as a leading global tobacco firm. The rating outlook is considered Stable, indicating that Fitch expects BAT to maintain its current financial health.
Strong Cash Flow and Profitability#
The upgrade is largely due to BAT's ability to generate significant cash flow and profitability. Fitch projects that BAT will produce between GBP1.8 billion and GBP2.4 billion in annual free cash flow after dividends from 2026 to 2028. This is supported by steady revenue growth, expected to be in the low to mid-single digits. The agency also anticipates an improvement in BAT's earnings before interest, taxes, depreciation, and amortization (EBITDA) margin, which is expected to rise to 48% by 2028.
Next-Generation Products#
BAT's next-generation products, which include modern oral products, contributed GBP442 million to the company's operating income in 2025, marking an impressive 80% increase from the previous year. Despite a decline in vapour product sales, BAT's smokeless revenue portfolio is growing, with a 7% increase in organic revenue for these products in 2025.
Financial Stability and Market Position#
Fitch also noted that BAT's financial strategy includes a net leverage target of 2.0x to 2.5x, which supports its upgraded rating. The company's net leverage was 2.6x in 2025 and is expected to decrease in the coming years. BAT's market position remains strong, holding a 52% share of the US vapour market, although overall vapour volume has declined due to regulatory challenges. Compared to its competitors, BAT is rated one notch below Philip Morris International, which has a rating of 'A', while being rated higher than Altria Group's 'BBB+'.