U.K. Tobacco Stocks Slide on Government Plain Packaging Review

Imperial Tobacco Group Plc and British American Tobacco Plc (BATS) fell in London after the U.K. reversed its position on plain cigarette packs, announcing a review of how the policy is working abroad.

Imperial fell as much as 3.2 percent, while BAT slid as much as 1.7 percent after Health Minister Jane Ellison said the U.K. will assess the subject, only four months after the government postponed plans to introduce plain packaging.

“We think the time is right to look at it,” Ellison said in an interview on BBC Radio 4. “What the government said in July was that it would look at the emerging evidence.”

Australia became the first country to introduce plain packaging in December. All cigarettes in the nation must be sold in uniform packs, with the brand name displayed on a brown background on the bottom quarter of the pack. The law is being challenged at the World Trade Organization and at arbitration.

According to Chris Wickham of Oriel Securities, who has a buy recommendation on Imperial Tobacco, plain packaging has made little difference to sales where it has been tried.

“Evidence from Australia so far shows no impact on market trends,” Wickham wrote in a research note today. “Furthermore, brands continue to drive cigarette market trends even in a plain-pack market.”

Still, today’s U.K. news is disappointing “given expectations that global tobacco legislation would become more evidence- or scientifically-based,” the analyst wrote.

‘Modest Amount’

Imperial Tobacco, the second-biggest maker of cigarettes in Europe, gets 20 percent of profit from the U.K., according to Oriel estimates. BAT makes only “a modest amount” of money in the region, Wickham said.

Imperial traded down 66 pence, or 2.8 percent, at 2,295 pence at 9:32 a.m., giving the company a market value of about 22 billion pounds ($36 billion). BAT fell 29.5 pence, or 0.9 percent, to 3,243.5 pence, valuing it at 61 billion pounds.

BAT supports “balanced and evidence-based tobacco regulation that helps governments to achieve their public health objectives,” Kingsley Wheaton, director of corporate and regulatory affairs at BAT, said by e-mail today.

Australian plain-packaging measures haven’t reduced legal sales of tobacco in the country and have “coincided with an increase in illicit trade,” Wheaton said. He called for “much more robust research” by the U.K. government into tobacco-control regulation.

Spokespeople for Imperial Tobacco were not immediately able to comment when contacted by Bloomberg News.

To contact the reporter on this story: Clementine Fletcher in London at cfletcher5@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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