Tobacco shares remain in rude health

August 16, 2012
The Age

Big Tobacco may have suffered a loss in the High Court yesterday, but a look at the share prices of tobacco companies shows the market sees a future in smoking.

While most tobacco stocks eased on the news of the court’s ruling on the plain packaging of cigarettes, shares in the companies are still up dramatically over the past year – underscoring the loyalty investors have for these lucrative companies and the booming markets they are tapping in Asia.

The Chinese and Eastern Europeans smoke at bloody breakfast.

Shares in Imperial Tobacco fell 1.7 per cent, or 44 pence, to £24.89, yet they are up 24.3 per cent over the past year. British American Tobacco stock fell 65 pence, or 2 per cent, to £33.80, but are up 27.5 per cent for the year.

“Those stocks still have a defensive quality to their earnings in turbulent times notwithstanding the sustained anti-smoking movement,” said CCZ Statton Equities director Dave Hofman.

The major tobacco companies were also targeting Asia for growth where, despite the efforts against smoking in the West, there was “still a massive smoking market”, he said.

The tension between health officials and the market was highlighted by the federal government’s victory yesterday when the High Court upheld the legality of Labor’s plain packaging laws against the wishes of five big tobacco companies. The change will force all cigarettes in Australia to be packed and sold in plain olive boxes – a world first.

The outcome has been hailed by public health officials in Australia and elsewhere as a blow to the global tobacco industry which is blamed for millions of deaths each year.

Shares in Philip Morris slumped 0.2 per cent overnight in the US to $US92.97 but are up 34.6 per cent in past year. Japan Tobacco fell 4.8 per cent, or 124 yen, to ¥2439 yesterday, the biggest decline since March 15, 2011. Yet for the year, the stock is up 44 per cent.

Mr Hofman said China has a huge smoking population, as does Indonesia, which has created large opportunities for the companies. “[Those countries] aren’t anywhere near as advanced as the West in terms of anti-smoking lobbies,” he said.

“We get a bit myopic in Australia, being the land of regulation.”

Peter Warnes, head of equity research for Morningstar Australasia said: “Why do people still think tobacco stocks are a good investment? Because nicotine is addictive.” Also China and Eastern Europe would remain key markets for global tobacco companies, he said.

“The Chinese and Eastern Europeans smoke at bloody breakfast,” Mr Warnes said.

Australia, with a population of only 23 million, is a “backwater” in terms of global marketing compared to markets in Asia, he said.

Whether European or English-speaking countries adopt Australia’s cigarette packaging laws because their legal systems are similar to Australia’s, one thing was certain, he said: “It won’t happen in China.”

Read more: