BAT’s shares fall on possible ban in the US

LONDON • British American Tobacco plc’s (BAT) shares plunged to the lowest level in more than four years on news of a possible ban on menthol cigarettes in the US, which would eliminate products such as Newport that generate as much as one quarter of the company’s profit.

The stock fell as much as 11% in London, destroying £8.4 billion (RM45.25 billion) of market value. US Food and Drug Administration (FDA) Commissioner Scott Gottlieb plans to pursue new restrictions on tobacco, the Wall Street Journal reported late last Friday, citing senior agency officials. That could eliminate a loophole in a flavour ban that has allowed menthol cigarettes to continue to be sold.

“BAT is the most exposed name to the potential risk,” wrote Richard Taylor, an analyst at Morgan Stanley who estimates that US menthol cigarettes account for 25% of total earnings.

The potential ban steps up the FDA’s campaign against youth smoking. Clove cigarettes were previously taken off the market, and now the agency is taking a tougher approach to alternatives, too. The FDA may impose limits on the sale of many e-cigarette products in the US, a senior official told Bloomberg News last week.

The FDA has been targeting flavoured tobacco products as studies indicate that teens who smoke menthol cigarettes consumed close to twice as many weekly compared to non-menthol users. Not all analysts think a ban is likely. Jefferies analyst Owen Bennett said such a move is improbable and would take years to implement.

Tobacco companies would probably mount a legal challenge that would delay the process, Gerry Gallagher, an analyst at Deutsche Bank, also said.

The decline in BAT shares illustrates that while the Lucky Strike maker is expanding into vapour and heated-tobacco products, the company is still very much a cigarette business. Traditional products make up most of its revenue. The company didn’t immediately respond to a request for comment.

Newport is BAT’s largest menthol brand and accounts for about 40% of US sales, according to Duncan Fox, an analyst at Bloomberg Intelligence. Tobacco companies won an exception for menthol, the most popular flavoured cigarette and the one preferred by black smokers, when a federal law banned other flavours in 2009.

BAT shares have dropped 40% this year, the biggest drop in at least two decades. They have had only two annual declines in the past 19 years.

Imperial Brands plc declined as much as 5%. The Winston maker gets about 15% of earnings from menthol brands such as Kool and Salem in the US, according to Jefferies. — Bloomberg