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Tobacco shares go up in smoke amid US crackdown plan Tobacco shares go up in smoke amid US crackdown plan
(about 4 hours later)
British American Tobacco and Imperial Brands had £7bn wiped from their stock market value as US regulators prepare to crack down on the sale of flavoured e-cigarettes and menthol cigarettes. British American Tobacco and Imperial Brands have had £8.6bn wiped off their stock market value as US regulators prepare to crack down on the sale of flavoured e-cigarettes and menthol cigarettes.
Shares in BAT, the sixth-biggest company in the FTSE 100 and the maker of brands including Lucky Strike, Dunhill, Rothmans and Benson & Hedges, tumbled by 11%, sending its market value plummeting from £76bn at the close on Friday to £69bn on Monday. The tobacco company’s share price has slumped by almost 40% over the past year, putting it on track for only its third annual decline in the last two decades. Shares in BAT, the sixth-biggest company in the FTSE 100 and maker of brands including Lucky Strike, Dunhill, Rothmans and Benson & Hedges, fell by 10.6%, sending its market value plummeting from £76bn at close on Friday to £68bn at the end of trading on Monday.
The share price of Imperial Brands, the maker of products including Lambert & Butler, Davidoff, Gauloises and John Player Special, fell by more than 3%. The £25bn company, the No 1 player in the UK market, had about £1bn stripped from its market value. The tobacco company’s share price has slumped by almost 40% over the past year, putting it on track for its third annual decline in the past two decades.
The US Food and Drug Administration will this week impose a ban on the sale of most flavoured e-cigarettes in tens of thousands of convenience stores and petrol stations across the US. The agency, which is trying to curb the huge increase in vaping among teenagers, will also impose age-verification requirements for online sales. The share price of Imperial Brands, the maker of products including Lambert & Butler, Davidoff, Gauloises and John Player Special, dropped by more than 3%. The £25bn company, the No 1 player in the UK market, had about £600m stripped from its market value.
The FDA is proposing a ban on menthol cigarettes, which, although it could take up to two years to be finalised and enforced, would be a major blow for BAT. It sells Newport, one of the most popular menthol brands in the US, through its subsidiary Reynolds American, which it picked up following a $25bn (£19.5bn) deal to buy Lorillard in 2015. American tobacco companies also suffered. Philip Morris International, the manufacturer of the world’s leading cigarette brand, Marlboro, and Altria Group, which runs Philip Morris brands including Marlboro in the US, were down by 1% and 1.9% respectively by lunchtime on the New York stock exchange.
US menthol sales account for about a quarter of BAT’s total annual profits, according to analysts at Jefferies. About 15% of Imperial’s profits come from menthol sales and at Altria, the US-listed maker of Marlboro, it stands at about 15%. The US Food and Drug Administration will this week impose a ban on the sale of most flavoured e-cigarettes in tens of thousands of convenience stores and petrol stations across the US. The agency, which is trying to curb the huge increase in vaping among teenagers, will also bring in age-verification requirements for online sales.
“In terms of how much profit is at risk, though, we think it is way below this,” said Owen Bennett, an analyst at Jefferies. “We think many will just switch into a non-menthol variant of their brand versus quitting, or, given the availability of reduced risk products, will now switch into one of these. The question is then, can the majors take their fair share of those switching?” The FDA is proposing a ban on menthol cigarettes, which, although it could take up to two years to be finalised and enforced, would be a major blow for BAT. It sells Newport, one of the most popular menthol brands in the US, through its subsidiary Reynolds American, which BAT picked up following a $25bn (£19.5bn) deal to buy Lorillard in 2015.
E-cigarette products in mint, menthol and tobacco flavours will still be sold in retail outlets in the US for now because US officials did not want to create a situation where cigarettes were more attractive to smokers who prefer a mint or menthol flavour. US menthol sales account for about one-quarter of BAT’s annual profit, according to analysts at Jefferies. About 15% of Imperial’s profits come from menthol sales, while at Altria, the figure is about 15%.
In 2013 the FDA concluded that menthol cigarettes are harder to give up and pose a greater health risk than regular cigarettes. Owen Bennett, an analyst at Jefferies, said: “In terms of how much profit is at risk, though, we think it is way below this.
Last week, the Imperial Brands chief executive, Alison Cooper, told investors that the company was targeting ambitious growth plans at “next-generation products”; it owns the blu e-cigarette brand. BAT owns e-cigarette brands including Vype and Vuse. “We think many will just switch into a non-menthol variant of their brand versus quitting, or, given the availability of reduced-risk products, will now switch into one of these. The question is then, can the majors take their fair share of those switching?”
“An ever-more-hostile regulatory environment might explain why BAT has decided to spend big on products like e-vapour and heated tobacco,” said Nicholas Hyett, an analyst at Hargreaves Lansdown. “These products are believed to cause less harm to users but even here the regulator is creating waves – potentially banning flavoured capsules popular with younger customers.” E-cigarette products in mint, menthol and tobacco flavours will still be sold in retail outlets in the US for now because officials did not want to create a situation where cigarettes were more attractive to smokers who prefer a mint or menthol flavour.
In June, San Francisco voters approved a proposition to ban the sale of flavoured tobacco products, including menthol cigarettes, in a battle in which the tobacco company RJ Reynolds, a subsidiary of Reynolds American, contributed $12m against the measure. In 2013 the FDA concluded menthol cigarettes are harder to give up and pose a greater health risk than regular cigarettes.
Last year, BAT re-entered the US market after a 12-year absence with the $47bn acquisition of Reynolds, owner of brands including Pall Mall, Newport and Camel, in a move that created the world’s biggest tobacco company and was expected to speed up the development of e-cigarettes and vapes. Last week, the Imperial Brands chief executive, Alison Cooper, told investors the company was targeting ambitious growth in “next-generation products”.
Nicholas Hyett, an analyst at Hargreaves Lansdown, said: “An ever more hostile regulatory environment might explain why BAT has decided to spend big on products like e-vapour and heated tobacco.
“These products are believed to cause less harm to users, but even here the regulator is creating waves, potentially banning flavoured capsules popular with younger customers.”
In June, voters in San Francisco approved a proposition to ban the sale of flavoured tobacco products, including menthol cigarettes, with RJ Reynolds, a subsidiary of Reynolds American, contributing $12m to try to prevent the ban.
Last year, BAT re-entered the US market after a 12-year absence with the $47bn acquisition of Reynolds, which owns brands including Camel, in a move that created the world’s biggest tobacco company and was expected to speed up the development of e-cigarettes and vapes.
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