British American Tobacco (BATS.L): Thoughts ahead of Capital Market Day

On 29/30th September, BAT will host a CMD in Winston Salem, which we believe comes at an interesting juncture for BAT. Updated FDA enforcement guidance for New Categories could represent a catalyst for an acceleration in New Category growth in BAT's main profit pool, which we view as central to the investment debate from here. Against that, we note questions regarding rising pressure on the consumer (notably higher gasoline prices), downtrading and pressure on certain combustible markets ex-US. Overall, we expect management to reaffirm its medium-term algorithm, and continue to view the investment case as balanced. We see the building blocks for an acceleration in US New Categories but believe further proof points are required to drive a further re-rating from here. We remain Neutral. Key CMD debates include: durability of Velo and Vuse momentum; New Categories reinvestment; US Combustibles outlook; international delivery;