Executive Summary

1. After two years of declining cigarette volumes, the revocation of the menthol ban should mitigate declining
volumes, although negative volumes are still expected.

Analyst thesis

1. Key points in the investment thesis are:
   a. Management states that illicit vapour in the US account for 60% of sales. The FDA is moving too slowly
   at the frustration of management. Aim for 50% smoke-free products by 2035.
   b. US cigarette sales surprised on the downside with volumes down in the low teens single digits in the
   past 18 months. This was against the expectation of 3-5%. Going forward it is expected at low single
   digits, and the revocation of the menthol ban should help.
   c. £900m in share buybacks expected in FY25. Net Debt/EBITDA expected to be below 2.5x upon results
   on 13 February which should prompt additional buyback plans.
   d. NGPs still growing strongly and have turned to a profit, and BATS has the highest market share in both
   vapour and Tobacco Heated Products.
   e. Company sitting on a dividend yield of 7% and forward PE of 9.3, 50% lower than Philip Morris.