Cigarette company's shares are growing despite the anti-smoking law.
Analysts, however, believe that investors will be indifferent to the new anti-smoking laws as long as the price of tobacco products is steadily increasing.
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Cigarette company's shares are growing despite the anti-smoking law.05/06/15
The shares of tobacco companies are traded better than the shares of other manufacturers of consumer goods, despite all prohibitions of European regulators and measures of tobacco control held in Europe and worldwide. This phenomenon is observed last month, The Wall Street Journal.
In the UK and Ireland, the authorities have already adopted the standardized cigarette packaging law, a similar measure was discussed in France. At the same time the shares of such companies as Japan Tobacco and Imperial Tobacco Group, which account for about 85% of the UK cigarette market, with the total amount of $ 25 billion, rose by about 10% over the past three months.
Investors explain that anti-smoking measures of the last decades, have not affected the investment attractiveness of tobacco companies, so the new restrictions should not be regarded as a threat. "Every new tobacco ban reduces the cost of doing business", - said one of the leading shareholders of the Philip Morris International company.
Like the other anti-smoking laws, such as restrictions on cigarette advertising, or a smoking ban in public places, the standardized cigarette packaging law is aimed at reducing the number of smokers, this means that the volume of tobacco companies sales are likely to continue to fall. Since the decline in cigarette sales has been observed for many years, tobacco companies are investing less, in production capacity and new equipment. Limiting tobacco advertising as well for tobacco companies turns into annual savings. As a result, cigarette manufacturers released cash, that were spent to investor's dividends.
Thus, according to FactSet, Europe's largest tobacco companies dividend yield over the past three years increased by 4%, while for all the companies of the pan-European Stoxx Europe 600 index grew by only 2.7%. Some investors even believe that the standardized cigarette packaging law will benefit tobacco companies, as they will help maintain market shares.
The calmness of shareholders contrasts sharply with the point of view of tobacco companies leaders, who are trying through the courts to block the cigarette plain packaging law, before it comes into force. British American Tobacco Company has filed a lawsuit against the British government, and other major tobacco companies also intend to sue the authorities of the United Kingdom and Ireland. Cigarette manufacturers claim that restrictive laws violate European Union law on trademarks, as well as international trade rules set by the World Trade Organization.
Analysts, however, believe that investors will be indifferent to the new anti-smoking laws as long as the price of tobacco products is steadily increasing. For example, in the UK, the average price of a pack of 20 cigarettes was increased by 7.7%, to GBP 7,01 ($ 10,48) during the 18 months, ended in January. The total amount of the tax in percent decreased, so the profits from cigarette sales continue to grow, despite the regulator's prohibitions.