The trouble is that menthol gaspers now constitute a significant portion of group revenues following the integration of the Newport brand of cigarettes, as part of last year’s deal to acquire RJ Reynolds. The Newport brand is one of the best sellers on the market, but the FDA believes that smokers find it more difficult to quit menthol cigarettes over regular brands.
If a ban is implemented, it wouldn’t become effective for a couple of years or so, which may provide BATS with a bit of breathing space (so to speak), but it’s apparent that the FDA is redoubling its efforts to curtail the use of tobacco products, including the growing use of e-cigarettes by teenagers.
And apparently, there are some industry players willing to follow the FDA – at face value, anyway. Last month, US tobacco industry giant Philip Morris (US:PM) launched a rather peculiar campaign called 'Hold My Light', which gives smokers access to a website where they can seek support if they’re planning to quit cigarettes. This obviously sounds like turkeys voting for Christmas, but the executives at Philip Morris are simply responding to the continuing fall in smoking rates in western countries. The 'Hold My LighT' campaign highlights smoke-free alternatives to tobacco products – ie, e-cigarettes, as a means of quitting conventional tobacco products.
It’s conceivable that investors in the sector could eventually be faced with risks not dissimilar to those set out in the journal Nature in 2015, when the ‘stranded assets’ scenario in relation to oil and gas investments was originally outlined. Curiously, a handful of large institutional investors have pulled out of the sector over the past 10 years or so, including one of the buffer funds in the Swedish national pension system. I think if I was running a pension scheme, I would be rather more inclined to promote smoking, if for no other reason than to limit long-term liabilities – to put it delicately. Norway’s massive sovereign wealth fund decided to divest tobacco holdings on ethical grounds in 2006, laudable in a sense, but the move ended up costing the fund around $1.94bn (£1.5bn) in missed profits over the following 10 years – that could buy a lot of lutefisk.
Tobacco stocks have outperformed the MSCI All-Country World index by 11.2 per cent in annualised terms since the turn of the millennium, but some industry watchers believe that the risks associated with the tobacco sector haven’t been adequately reflected in industry valuations but will become harder to ignore over the long term.
Perhaps so, but are portents for the industry wholly negative? The Lancet carried out analysis of trends among smokers using regression modelling, which enabled the medical journal to make projections up to 2025. The research, conducted in more than 170 countries, showed that the prevalence of tobacco smoking in men fell in 72 per cent of countries between 2000–10, while the fall was appreciably larger for women at 87 per cent. On that basis you would think that smoking is in terminal decline, but the same analysis shows that only 21 per cent of countries are on track to achieve their tobacco control targets for men and 49 per cent are on track for women.
The median estimate for the number of smokers worldwide is given as 1.1bn, which is in line with the World Health Organization’s current estimate, but the Lancet’s findings are particularly telling in one aspect, ergo that the “striking between country disparities in tobacco use would persist in 2025, with many countries not on track to achieve tobacco control targets and several low-income and middle-income countries at risk of worsening tobacco epidemics if these trends remain unchanged”.
