FDA resignation fires up BAT’s share price by 5.39%

BRITISH American Tobacco (BAT), the world’s largest publicly traded tobacco company, jumped by more than 5 percent, the most in four months on the JSE yesterday as the market digested the surprise resignation of US Food and Drug Administration (FDA) commissioner Scott Gottlieb.

Gottlieb, who pushed to restrict sales of flavoured e-cigarettes and ban menthol cigarettes, is expected to step down in April.

BAT, the second largest stock on the JSE after Anheuser-Busch InBev, increased 5.14 percent higher in early trade to exchange hands at R563.65 a share amid hope that menthol cigarettes which accounted for a quarter of BAT’s US cigarette sales would rebound. The stock closed 5.35 percent up at R565 on the JSE yesterday.

The all share index closed 0.46 percent higher at 56 073.86 yesterday.

BAT, which has lost 13 percent amid Gottlieb’s proposed restrictions on the sale of menthol, was expected to turn around on the announcement, experts said.

Imtiaz Suliman, an analyst from Sentio Capital, said yesterday that Gottlieb’s resignation was a relief for the market as it signalled the possible relaxing of the proposed menthol restrictions.

“The market is hoping that there will be a pull-back on the restrictions which will be positive for BAT,” said Suliman.

He said due to the menthol debacle BAT was the cheapest tobacco stock among its listed peers from price-earnings ratio perspective.

“The dividend yield is also very attractive and we think that the menthol issue is more than priced in. The menthol issue is unlike a lawsuit, whereby the quantum of claims is open-ended. With the ban on menthol, one can quantify and price the loss into the valuation. It’s likely to take between 7 and 10 years for the menthol ban to become fully effective,” said Suliman.

BAT’s Newport menthol cigarette brand is one of the three main brands in the US alongside Camel and Natural American Spirit.

Amelia Morgenrood, a PSG Wealth financial adviser based in Pretoria, said last month that BAT was a favourite stock among investors until May 2016 when it reached a high of more than R900.

“Since then the share price struggled, and it has been an enormous disappointment for shareholders,” she said, adding that when it reached R450 January, it was only doom and gloom, and investors lost confidence.

She said that the share had turned the corner.

“BAT offers a product that has traditionally demonstrated resilience in times of economic uncertainties as it has a strong economic moat and enjoys high brand loyalty,” she said, adding the company had a well-balanced portfolio of brands.

However, BAT is not yet out of the woods because the Canadian Court of Appeal last week upheld a court decision of May 2015 that said it would have to cough up to £6 billion (R111.9bn) in damages to 100 000 Quebec smokers.

The smokers alleged that BAT subsidiary Imperial Tobacco Canada knew since the 1950s that its products were causing cancer and failed to warn consumers.

BAT on Monday said that its subsidiary would now review the court’s decision in more detail.

TECHNOLOGY