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UPDATE 2-BAT sees profit boost from e-cigs as more smokers switch

(Adds analyst comment, details on volumes and outlook, shares)

Feb 17 (Reuters) - British American Tobacco forecast on Wednesday e-cigarette and tobacco heating devices would contribute to earnings for the first time this year as more smokers switch to products perceived as less harmful in the pandemic.

The maker of Lucky Strike and Newport cigarettes saw three million more customers use its “new categories” products - including e-cigarette, tobacco heating and oral nicotine - during the COVID-19 pandemic in 2020.

It also sold more higher priced cigarettes, helping adjusted earnings to reach 331.7 pence per share (EPS), beating analysts’ average estimate of 329.87 pence, according to Refinitiv data.

However, pretax profits fell short of expectations, knocking shares in the world’s second-largest tobacco company down around 5% in early trading.

“For the first year, new category losses will reduce and therefore new categories are going to contribute to our full year (2021) earnings growth,” Chief Marketing Officer Kingsley Wheaton told Reuters.

The World Health Organization and the United States Centers for Disease Control and Prevention have redoubled warnings about smoking, saying it makes it harder to fight off the effects of respiratory disease COVID-19.

BAT expects global tobacco industry volumes to decline around 3% in 2021. It did not, however, give a forecast for the key U.S. market, citing COVID-19 uncertainties.

The company said it was confident it would have 50 million customers using new categories products by 2030, after revenue in the business rose 15% in 2020, boosted by a 52% jump in vapour sales, which include its Vuse and Vype brands.

BAT forecast constant currency revenue growth of 3% to 5% this year to reach 26.55 billion-27.06 billion pounds, above the 26.1 billion pounds expected by analysts. It also projected mid-single-digit adjusted EPS growth for 2021.

But Jefferies analysts said investors were disappointed the company did not give specific guidance for new products sales growth and U.S. volumes.

BAT raised its full-year dividend by 2.5% to 215.6 pence per share, which it said was the highest dividend yield among FTSE-listed stocks, at a time rivals such as Imperial Brands have cut theirs.

“Investors looking at BAT shares over the past 12 months have probably felt a lot like an ex-smoker staring at an open pack of Camel Blues,” Freetrade analyst David Kimberly wrote.

“You know they’re probably not going to be good for you in the long-run but the hit that high yield dividend gives can be hard to resist, particularly when everyone else has cut or cancelled theirs.”

$1 = 0.7204 pounds Reporting by Siddharth Cavale and Tanishaa Nadkar in Bengaluru. Editing by Vinay Dwivedi and Mark Potter

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