British American Tobacco loses R146 billion in one day

British American Tobacco (BAT) saw R146 billion wiped off its market cap yesterday following the announcement that it would devalue its US cigarette brands by £25 billion (R594 billion). 

This caused the biggest daily decline in almost four years, with BAT’s share price declining just over 10% on the JSE and London Stock Exchange. It was the second steepest decline in the company’s share price since 2008. 

“Consistent with our vision to ‘build a smokeless world’, and in combination with the current macroeconomic headwinds impacting the US combustibles industry, in 2023, we will take an accounting noncash adjusting impairment charge of around £25 billion,” CEO Tadeu Marroco said.

The cigarette maker also alarmed investors by saying organic revenue growth this year will be lower than expected, while the outlook for next year is for growth in the low single digits.

The “disappointing” mid-term guidance highlights challenges in the US cigarette market and increased competition in new categories such as vapes, nicotine pouches and heated tobacco. 

BAT shares are now down over 20% for the year in Johannesburg after recovering slightly on Thursday morning. 

As demand for cigarettes cools in the US and elsewhere, BAT and rivals are battling for market share in tobacco alternatives.

The seller of Vuse vapes and Velo nicotine pouches said its alternatives business should break even in 2023 – ahead of schedule — and be profitable next year.

Yet the company has ground to make up against competitors. It predicted alternatives will account for about half of sales by 2035 – about a decade behind a similar goal from bigger rival Philip Morris. 

BAT’s pod refill Vuse vapes are facing stiff competition from disposable vapes from upstart competitors, many of whom are based in China.

Marroco said recently that disposables now account for more than half of the US market, the biggest market for vapes.

Governments in France, the UK and the US are considering a crackdown on disposables and vape flavours amid concerns the products are targeting underage users. BAT has said it is planning a media campaign to curb underage vaping.

South Africa’s richest man, Johann Rupert, may take a hit from the sharp decline in BAT’s share price as his Reinet Investments reported in its latest interim results that it held shares in BAT worth €1.43 billion (R29 billion). 

Rupert has repeatedly touted Reinet’s investment in BAT as vital to Reinet’s success as it gives the company the cash to invest in other businesses through its consistent dividend payments. 

For the first half of its 2024 financial year, Reinet received €65 million in dividends from the tobacco giant.