At a time when consumers are supposed to be cutting back on discretionary spending, and the Government is desperate to make us healthier, we were more than a little surprised to learn this morning that Imperial Tobacco’s UK cigarette sales actually increased by 1% in 2009 – the first time this has happened in almost four decades. We suppose you might argue that it’s one of people’s few pleasures these days – although the whole ‘chemical addiction’ thing is probably a more important reason why cigarette companies tend to make good defensive stocks…
Imperial flogged no fewer than 45.5bn cigarettes in the UK last year. According to incoming boss Alison Cooper, that’s partly because fewer people are travelling abroad and bringing them back duty-free, boosting the domestic market. Trading down has also been a factor: it looks as though some smokers have been buying Imperial’s cheaper brands rather than the more expensive ciggies of its rivals. Another indication of this trend is that Imperial’s sales of fine-cut tobacco have soared 21% to a whopping 4,650 tonnes, as more smokers choose to roll their own. Some may consider this a particularly unpleasant version of a particularly unpleasant habit, but Imperial presumably isn’t complaining.
Tobacco is a weird business. As well as facing the never-ending hostility of non-smokers, cigarette-makers have to put up with continuous Government attempts to legislate them out of existence, and nobody outside the industry could care less. The latest wheeze of Health Secretary Andy Burnham - who wants to halve the number of smokers in England and Wales from 20% of the population to 10% - is for cigarettes to come in plain packaging, presumably on the grounds that people only buy fags because of the pretty colours on the packet. As you’d expect, Imperial isn’t keen – it argues this will just increase illicit trade because they’ll be a lot easier for counterfeiters to copy (thus depriving the exchequer of lots of lovely tax revenue).
If it was in any other industry, Imperial stock would be a must-buy: growing sales, steady market share, loyal customers that aren’t particularly price-sensitive; a successful recent acquisition (Altadis); the firepower for further deals. But in this case, lots of people will see its success as proof that something is going wrong. Maybe if the Government stopped telling us we shouldn’t do it...
In today's bulletin:
Ofgem: Energy industry needs more public money
Setback for UK as snow puts freeze on services recovery
Orange and T-Mobile tie-up to face OFT scrutiny?
Imperial Tobacco celebrates fag end of recession
Crash Course: Seven ways to manage poor performance