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FTSE rises but tobacco stocks slump on US crackdown

Tobacco stocks continue to slide as US regulators plan to slash nicotine levels allowed in cigarettes to make them less addictive.

 
FTSE rises but tobacco stocks slump on US crackdown

Tobacco stocks have continued to slide after the US Food and Drug Administration (FDA) on Friday announced to plans to slash the amount of nicotine allowed in cigarettes to make them less addictive and easier to quit.

The surprise announcement sent shares in cigarette makers tumbling late on Friday. Although they recovered some ground by the end of the session they have resumed their slide today.

Imperial Brands (IMB) fell 3.9% to £31.86 and is down 7.2% over the last two days, while British American Tobacco (BATS) dropped 2.3% to £48.47, down 8.1% since Friday.

FDA commissioner Scott Gottlieb said in a speech that 'we need to envision a world where cigarettes lose their addictive potential through nicotine levels'.

He argued that while nicotine was not the primary cause of the diseases associated with smoking, its addictive qualities combined with the harmful chemical compounds in tobacco smoke made tacking nicotine levels in traditional cigarettes a priority, while higher nicotine content could be delivered by 'less harmful alternative forms' such as 'medicinal nicotine products'.

'Looking at ways to reduce nicotine levels in cigarettes so they are minimally or non-addictive, while not altering the nicotine content of non-combustible products such as e-cigarettes, is a cornerstone of our new and more comprehensive approach to effective tobacco regulation,' he said.

Mike van Dulken, head of research at Accendo Markets, said the initial sharp sell-off of tobacco stocks appeared to be an over-reaction.

He said Gottlieb's stance suggested 'balancing regulation of existing products with encouraging innovation for future less harmful options' and that investors should 'never underestimate the lobbying power of the mighty tobacco industry'.

'It doesn't read like the industry is destined to go up in smoke,' he said. 'Shares are already well off their worst levels.'

Tobacco stocks bucked a rising FTSE 100, which added 37 points, or 0.5%, to 7,406. Miners were among the biggest risers after copper prices hit a two-year high following strong manufacturing data from top metals consumer China. Risers included:

  • Anglo American (AAL) +3.1% at £12.70;
  • Glencore (GLEN) +2.4% at 339.3p;
  • Antofagasta (ANTO) +2.2% at 959.5p;
  • Rio Tinto (RIO) +2% at £35.75;
  • BHP Billiton (BLT) +1.8% at £13.88.

Seven Trent (SVT) was the biggest riser, up 3.3% at £22.23 after a double upgrade from analysts at RBC, who also upped their rating on United Utilities (UU), sending the stock 2.9% higher at 897p.

HSBC (HSBA) was up 2.9% at 764.8p after the bank extended its buyback programme.

On the FTSE 250, IT services firm FDM (FDM) jumped 9.8% to 873p after reporting a 35.4% jump in first-half revenue.

3 comments so far. Why not have your say?

Micawber

Jul 31, 2017 at 15:21

Sold our little remaining Perpetual Income & Growth IT this morning. Not only has it underperformed these past two years, but its current top ten in the pf look mostly terrible - including the **16%"" (!) pf weighting to tobacco stocks. Then there's Provident Financial, BP, BAE, BT......... Sad to see it go - we were among the original subscribers at launch and it did us very well until 2014 - but Barnett's lost it (maybe because Woodford is not in the office next door?)

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anglo29

Jul 31, 2017 at 15:44

I had wondered why tobacco stocks still feature so heavily in a number of income trusts. Surely it has been obvious for some time that the smoking habit (thankfully) is in decline, at least amongst men. Legislation to ban it in restaurants/pubs etc., is partly responsible, but I think also most folk are becoming more aware of the importance of staying healthy.

I understand the dividend appeal of these stocks, but perhaps fund managers need to be more forward looking in searching out other areas also paying attractive dividends, rather than settling for the traditional "easy option"

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Jeff Warren

Jul 31, 2017 at 16:35

In 1946/7 when we had to borrow heavily from " Uncle Sam " Virginia Tobacco was very difficult to find [even under the counter ] so we smoked Rhodesian & Turkish .Another point a lot of tobacco is grown in Canada round Delhi in S W Ontario & also in Italy Though they toast theirs as is the American taste So whats the panic !. In indonesia they flavour it with cloves

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