Today I am outlining why British American Tobacco (LSE: BATS) (NYSE: BTI.US) could be considered an attractive addition to any share portfolio.
E-cigarette report boosts legislative battle
With e-cigarettes on course to become the tobacco industry’s hottest growth sector, the world’s major cigarette manufacturers have thrown shedloads of cash at developing new products, acquiring cutting-edge technologies and embarking on elaborate marketing campaigns to steal a march on their competitors.
British American Tobacco threw its hat into the ring when its Vype brand hit the shelves last year, and the firm is planning to roll-out another e-cigarette some time in 2015. But ‘big tobacco’s’ latest product faces the same legislative hurdles affecting their conventional tobacco products, from the introduction of plain packaging and health warnings on cartons through to bans on using the new technology in public places.
However, a new study published in the journal Addiction gave the industry a much-needed boost in this regard. Not only did the report rubbish the notion that vapourisers encourage users to start smoking conventional cigarettes, but it also backed up manufacturers’ claims that the new technology can help existing smokers quit.
Furthermore, the report argued that e-cigarettes are much less damaging to smokers’ health — as well as that of those exposed to ‘second-hand’ smoke — and that the toxins emitted are far less concentrated than those seen in traditional products.
Of course the tobacco industry still faces a plethora of similar studies which are likely to influence the legislative process. But the release of last month’s report has broken the run of negative news headlines surrounding the new technology, a move that could prove crucial in altering the perception of e-cigarettes.
Premier brands set to drive revenues growth
Shrugging off the effect of rising health concerns, falling consumer spending power in key developing markets and a growing black market, the terrific pricing power of British American Tobacco’s ‘Global Drive Brands’ looks poised to keep revenues steaming higher.
The business reported last month that revenues at constant currencies rose 3% during January-June, to £7.8bn, driven by stunning performance from its industry-leading labels such as Lucky Strike and Pall Mall — volumes here surged 5.7% during the period, helped by a 60 basis point rise in market share.
It is true that the effect of currency weakness in key markets is currently playing havoc with British American Tobacco’s revenues performance — revenues dipped 10% at actual exchange rates during the first half — but I believe that strength of the company’s industry-leading brands should underpin long-term sales growth.