UK: Tobacco Shares under Pressure

Source from:  The Telegraph  11/22/2013

Investors stubbed out their enthusiasm for London's tobacco shares today in the wake of an unsettling update from American cigarette giant Philip Morris.

London-listed Imperial Tobacco fell 63p, or 2.6pc, to £23.67 and British American Tobacco lost 79p, or 2.4pc, to £32.81 after Marlboro maker Philip Morris said it planned to enter the e-cigarette market in the second half of next year and would bring forward the launch of another, safer, alternative to traditional cigarettes that heats, rather than burns, tobacco.

BATalready makes so-called "e-cigarettes" and Imperial plans to launch two battery-powered products next year to tap into a market that generates about $2bn (£1.2bn) in global sales.

Analysts at Citigroup said Philip Morris's plan to spend $100m to accelerate the roll-out of its next generation of products, as well as an increase in marketing investment in traditional cigarettes, was likely to present the two British companies with "tougher competition".

"For us the most important read-across is that the increased marketing spend and [next generation] launches will make it harder and more expensive to compete," they argued.

Philip Morris' downbeat outlook for the cigarette industry gave investors another reason to push shares in the London-listed tobacco companies lower. Excluding the US and China, the group forecast that cigarette volumes will decline by 2pc to 3pc next year, on top of a 3pc fall in 2013. European volumes are expected to fall between 7pc and 8pc in 2014 and Russian volumes will shrink as much as 11pc. Those estimates are more significant for Imperial, Panmure Gordon analysts said, "given its greater skew to Europe and exposure to low and mid-tier segments in Russia".  Enditem