Times are tough for the FTSE 100’s Big Tobacco players Imperial Brands (LSE: IMB) and British American Tobacco (LSE: BATS).
Unless you’ve been living in a cave for the past several years, you’ll know how the steady legislative creep on the sale, marketing and usage of their traditional combustible goods across the globe has had a devastating impact upon sales in that time.
It’s a trend which has seen the share prices of the aforementioned companies slump an incredible 50% and 38%, respectively, over the past three years alone.
I know there’s plenty out there cursing the mindset of recent sellers and what they deem to be chronic short-termism. Sure, sales of their tobacco products might be on the slide but the vast investment they’re making in e-cigarettes and other vaping technologies should still pave the way to rich returns, right?
Playing with fire?
Well it’s possible but, in my opinion, anyone banking on these next-generation products to drive sales like cigarettes used to is playing with fire. I’ve touched upon the increasing legislative attack on the likes of Imperial Brands’ Blu, and British American’s Vype e-cigs, time and time again. And in recent weeks, newsflow surrounding the issue has got even worse.
In what could prove a game-changing moment for the industry, the Illinois Public Health Department last month claimed a patient who died of severe lung disease in the state did so as a direct result of using vaping products. Legislators have since called in the Centers for Disease Control and Prevention (CDCP) to investigate some 36 cases where respiratory illness is said to be related to the use of e-cigarettes and similar technologies.
In total, there are almost 200 such cases being investigated across the US, the CDCP says and, as a result, the heat is well and truly being turned up on Big Tobacco’s operations in North America. Lawmakers in Los Angeles County, to cite just one example, are thinking of following the ban on public vaping introduced several years ago by introducing restrictions on the sale of flavoured tobacco for e-cigs.
But things aren’t only getting tougher in the US as legislators in critical emerging markets also pile in against the vaping segment. Indeed, news has emerged in the last fortnight that the Indian government is mulling steps to ban the production and importing of e-cigarettes to prevent an “epidemic” developing among young people in the country.
Up in smoke
And in the meantime, the legislative attack on Imperial Brands and British American’s traditional products continues to grow too. August also saw the latest ban on indoor smoking in public spaces introduced in Montenegro, one of Europe’s biggest cigarette markets where an estimated third of the population are regular smokers.
Big Tobacco was always considered one of those ‘sure bets’ for investors, the addictive nature of their products providing the bedrock for solid earnings and dividend growth year after year. But the party seems to be well and truly over and I fully expect the likes of British American and Imperial Brands to keep on sinking.
So ignore their juicy forward dividend yields of 7% and 10%, I say, and build your retirement strategy with other UK-listed income stocks.
