British American Tobacco (BATS) might have hoped reconfirming guidance for full-year sales of vapour and tobacco heating products – expected to almost treble to £900m – would calm investor fears of growing regulatory pressures. However, the update did little to boost the shares, which are down 45 per cent during the past 12 months.
In fact, tobacco has been the single worst-performing sector in 2018 in capital terms, excluding dividends, out of the 39 industry groupings that form the FTSE All-Share, according to research by AJ Bell. The tobacco sector is down 41 per cent, compared with a 9 per cent decline across the broader All-Share. British American Tobacco has been the hardest hit out of the two UK-listed tobacco companies, compared with a 21 per cent decline for Imperial Brands (IMB).
That is probably due to its heightened exposure to the US, boosted by the 2017 acquisition of Reynolds. American regulator the Food and Drug Administration (FDA) has considered cutting the amount of nicotine that can be allowed in combustible cigarettes, putting heavier regulations on menthol cigarettes, and has threatened an investigation into whether it should ban some flavoured e-cigarette and vaping products because of their popularity with teens. The ongoing concern with tobacco companies centres on whether innovative new products can compensate for declining cigarette volumes over the long term.