Why would an investor tell the market of their intention to sell a holding before actually doing so -- and leave themselves vulnerable to short-sellers?
Leave aside that quirk for a moment, and Axa's announcement that it will exit 1.8 billion euros ($2 billion) of tobacco holdings looks even more oddly timed.
Axa says it can't reconcile being a health insurer -- which accounted for 25 percent of last year's underlying earnings -- and supporting tobacco, which it calls a "sunset industry."
What took the insurer so long to recognize the inherent contradiction? Well, for a sunset industry, tobacco's recent performance has been stellar.
Shares in the Bloomberg Intelligence tobacco manufacturing peer group have delivered a 13 percent return over the past year, compared with a 4 percent decline in the MSCI World Index. Over the past 10 years, tobacco's out-performance is even starker: total return was 308 percent, compared with the MSCI world's 43 percent.
On an enterprise value to forecast earnings before interest tax, depreciation and amortization, the shares trade on a 22 percent premium to the MSCI Index -- a much fatter premium than in recent years.
The dividend yield has also beaten the market. The Bloomberg Intelligence tobacco manufacturing peer group had a dividend yield of 3.7 percent in the first quarter of this year, beating the MSCI World index's 2.7 percent. That's pretty valuable to an insurer in a low interest rate environment.
About 200 million Euros of Axa's holdings are stocks. The rest are bonds, almost all of which will mature over the next 10 years. Aside from the odd blip around litigation, these have been solid performers.
So, with valuations at punchy levels, is Axa calling the top of the cigarette market? It might be too early to make that call.
Tobacco companies are investing heavily in what they claim are healthier alternatives to cigarettes, and are on the cusp of significant breakthroughs. These include electronic cigarettes and heat-not-burn devices, where companies including Philip Morris are pushing ahead.
The electronic cigarette market has grown from just $50 million in 2005 to an estimated $7.5 billion in 2015, and could hit a compound annual growth of 20 percent by the end of the decade, according to Euromonitor.
The cigarette industry is also poised for another round of consolidation that may fuel valuations further.
For Axa, the risk is that it will struggle to replicate the returns it's enjoyed from tobacco in other sectors. The decision to give up smoking is right -- but, as anyone who's stopped smoking will tell you, it won't be easy.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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