What lies in store for tobacco companies?

Pauline
21 novembre 2024
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In an ever-evolving society, where technology is always developing, the brands who do not adapt are doomed to failure. Let’s take the example of Nokia, a company unable to adapt to the smartphone revolution. How has the vaping industry, along with anti-smoking initiatives, affected the tobacco market?

Is Big Tobacco in a downward spiral, or can they innovate and bounce back? This is the question currently under careful consideration by British fund managers who no longer know where to invest.

Of the Tobacco giants, two companies in particular seem to be looking to the future with a clear vision: British American Tobacco (BAT) and Imperial Brands. These two companies decided to focus on new technologies, and currently a Clash of Titans is underway.

BAT’s advantage over Imperial brands still has to pass the test of time

Currently, BAT is the “Next generation” leader in the tobacco industry, behind Philip Morris International. After some strong investments in the e-cig market, the brand is choosing to focus on new innovative products. Among these is of course heat-not-burn or HNB devices, which achieve the miracle of “smoke without a fire”. These products are expected to reach 27 % of the tobacco market in Japan by 2023.

BAT’s share prices rose 9 % after their announcement of a 500 million pound in revenues for 2024. The company expects to double this revenue in 2018, and ten time the amount by 2023.

Philip Morris and BAT seem to be in a league of their own. And yet Eric Moore, the Miton Income fund manager, is not as confident. He estimates that Imperial Brands may soon take the lead.

Currently, the company is taking the cautious approach, focusing on tried and tested tobacco products and electronic cigarettes, rather than new technologies. Still, Imperial Brands has achieved a growth in dividend value of 10 % per year for the past 5 years. As it is, Imperial seems to be a more profitable company, as for now these new technologies are not as lucrative as traditional cigarettes.