What’s Going On Here?British American Tobacco (BAT) announced an upbeat forecast for the rest of the year on Tuesday, and investors were left breathless. What Does This Mean?If you think you’ve been seeing more longboard-riding startup execs leaving trails of vape smoke in their wake, you’re not imagining it: BAT added a record 1.4 million new customers of its “non-burning products” last quarter, bringing the total to 15 million (tweet this). And of all its brands, Vuse has been the standout: the vaping mainstay now boasts a market share of more than 30% in five of the world’s biggest vaping markets.
The upbeat results encouraged BAT to bump up its sales growth forecast for the rest of the year, but it left its profit forecast where it was. That might be because the company’s investing heavily in its non-burning products business in an effort to grow sales, and it’s admitted that the segment won’t become profitable till 2025. Why Should I Care?The bigger picture: Smoking’s not cool anymore.
Tobacco stocks have been feeling the heat lately, partly because traditional cigarette businesses – which still make up the bulk of their sales – are increasingly at risk of tighter regulation. And it’s true that smoking rates have been falling around the world, with cigarette sales expected to fall by 3% this year. Not everywhere, mind you: Pakistan, Bangladesh, and Vietnam all have flimsier anti-smoking rules, which might be why BAT singled them out on Tuesday as key areas for growth.
For markets: Nice-to-haves are out, must-haves are in.
Then again, one investment research group thinks now might actually be the perfect time to buy tobacco stocks. See, the economic recovery is transitioning from “early-cycle” to “mid-cycle”. That’s when growth rates start to peak, and when consumer staples stocks – like tobacco – should outperform consumer discretionary stocks, like fashion. That’s down to their more stable earnings potential, and, as an added bonus, how much cheaper they currently look. | 