Tobacco groups burnt by antismoking movesBy Bryce Elder
The sharpest weekly fall in three and a half years left Imperial Tobacco lagging behind a buoyant London market on Friday.
Tobacco makers have dropped this week on reports that France would follow Australia in enforcing plain packaging. That followed news earlier in the week that Russia would seek to ban smoking in public spaces, and added to speculation that Imperial may miss full-year targets.
“Unfortunately, this spate of newsflow probably has more to run,” said Société Générale. Plain packaging proposals are expected to be formalised in France within the next few weeks while the UK is also expected to tackle the issue shortly, having concluded a consultation period last month. The EU is scheduled to deliver a tobacco directive before the end of the year.
Imperial takes about a third of group earnings from France, the UK and Australia, whose law on plain packaging takes effect in December. Citigroup expected more countries to follow the lead.
“Whereas investors want to maximise returns, politicians want to maximise votes, and we think that most politicians in many countries will believe they can do this by voting for plain packaging,” it said.
The short-term impact to earnings was likely to be small, analysts said.
Citi drew a parallel between plain packages and pictorial warnings of the health risks from smoking, which it said had had no measurable effect on sales. But it cautioned that the long-term effect on customers’ habits and brand perception was impossible to predict.
Nomura guessed that plain packaging in developed markets would cut earnings by 23 per cent over the course of a decade, largely due to counterfeiting and illegal imports.
Imperial lost 3.5 per cent to £22.62, taking its slump since Monday to 7.9 per cent. British American Tobacco was down 2 per cent at £31.74 and had lost 3.9 per cent over the week.
For BAT, most of the risk was largely in the price already, said Nomura. More than half of BAT’s underlying earnings were from emerging markets, where the pace of regulation would be slower, it argued.
For Imperial, Nomura saw a chance that Japan Tobacco would make its long-rumoured takeover approach. But with the Japanese government unlikely to reduce its Japan Tobacco stake before next year, the prospect of a bid was looking more distant, it said.
http://www.ft.com/intl/cms/s/0/15d6b688-f8b7-11e1-b4ba-00144feabdc0.html#axzz25vrxIpnE
