British American Tobacco signals ITC stake disposal, shares soar 7%

British American Tobacco is "actively working" to sell some of its shareholding in India's ITC, it said on Thursday, sending its shares up 7% as investors cheered a move towards resuming share buybacks.

The maker of Dunhill and Lucky Strike cigarettes disappointed investors when it opted against a fresh buyback programme last year to focus on reducing debt and investing in new products.

As a result, it has come under pressure to reduce its roughly 29% stake in ITC, an Indian consumer goods giant that makes a large portion of its revenue from cigarettes but also operates hotels, a paper business and more.

Such a stake sale would allow it to pay down debt and move faster towards the leverage range at which it could resume buybacks.

"We have been actively working for some time on completing the regulatory processes required to give us the flexibility to monetise some of our shareholding and will update you at the earliest opportunity," BAT Chief Executive Tadeu Marroco said in the company's results statement.

It marks the strongest signal yet that the company could dispose of some of its stake.

Chris Beckett, head of equity research at Quilter Cheviot, said that as well as the ITC commentary, the market was also relieved that BAT's dividend, up 2% on last year, remained intact after some concerns it could be cut.

The stock had been "unloved" following the loss of the buyback, he said, adding: "Getting to a buyback would be a good thing".

The shares were trading 6.5% higher at 09:29 GMT.

High dividends and share buybacks are a key element of the investment case in highly cash-generative tobacco companies.

BAT also reported a 5.2% rise in adjusted diluted earnings per share on Thursday, slightly beating analyst expectations.

It forecast low single-digit organic revenue growth in 2024, adding that it expected a slow recovery in the U.S. economy.