Why I Sold British American Tobacco

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

LONDON -- British American Tobacco  (LSE: BATS  ) (NYSEMKT: BTI  ) is one of the most popular U.K.-listed companies. With a market capitalization of 66 billion pounds, this cigarette manufacturer is the eighth biggest company in the FTSE 100.

BATS recently reported an 8% rise in adjusted profits and a 7% dividend increase. With a collection of brands and an army of customers frequently loyal to their dying breath, BATS is also one of the very most successful listed companies.

So why am I betting that the shares will fall? There are three main reasons.

1. Declining sales
According to data from, between 1950 and 1990, global annual cigarette consumption grew by an average of 48% every 10 years. Between 2000 and 2009, the growth in annual consumption was just 3%.

With its recent final results, BATS reported a 1.6% drop in cigarette sales vs. the previous year. Rival Imperial Tobacco's last trading statement reported a 1% decline in the number of cigarettes sold.

Bulls will suggest that growth in emerging markets will save BATS. I disagree -- awareness of the risk of smoking is prevalent and easily disseminated. New smokers will be much harder to win over than previously.

Tobacco's golden years are over.

2. Stretched share price
I believe that there are hundreds of better bets than BATS.

Although BATS has a great dividend history, our analysts here at The Motley Fool don't regard the company as the best income play on the market. That honor goes to the share they've written about in the free report "The Motley Fool's Top Income Share for 2013." Just click here to get the lowdown.

BATS trades on a 2013 price-to-earnings (P/E) ratio of 15.1 times expected earnings. The average P/E for a FTSE 100 share is 15.9. The trouble is, BATS' long-term prospects are much worse...

3. Hostile regulation
Governments are legislating for increasingly prescriptive tobacco regulations. Australia introduced plain pack rules in December. New Zealand will follow. The same ban is expected to be announced for the U.K. In parts of Canada: It is illegal to smoke in a car with a child. The Chilean government has (as of today) enacted a ban on smoking in enclosed areas such as pubs and restaurants. Russia is banning smoking in the workplace later this year.

In all four corners of the world, it will be more difficult in the future for tobacco companies to promote their goods or for people to buy and smoke cigarettes. 

If you are looking for a share that can grow earnings substantially for a sustained period, check out the latest Motley Fool report, "The Motley Fool's Top Growth Share for 2013." The share featured is a leader in real growth markets. Get this free report here.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2289304, ~/Articles/ArticleHandler.aspx, 10/25/2016 10:53:23 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 hour ago Sponsored by:
DOW 18,169.27 -53.76 -0.30%
S&P 500 2,143.16 -8.17 -0.38%
NASD 5,283.40 -26.43 -0.50%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/25/2016 12:10 PM
BATS $4720.98 Up +2.48 +0.05%
British American T… CAPS Rating: No stars
BTI $114.28 Up +0.18 +0.16%
British American T… CAPS Rating: *****
IMB $3925.84 Up +6.34 +0.16%
Imperial Brands CAPS Rating: No stars