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By Emma Rumney
LONDON, Dec 6 (Reuters) - British American Tobacco's admission that its U.S.
cigarette brands will be worthless within decades has ramped
up pressure on the company to prove it can better compete in alternatives like vapes.
Earlier on Wednesday, BAT put a 30-year lifetime on some U.S.
tobacco brands' value, taking a $31.5 billion noncash impairment.
The move marked the first time a tobacco company has
acknowledged that hugely profitable brands have no economic future.
While the maker of Lucky Strike and Dunhill cigarettes has been investing in alternatives
like vapes to counter the decline, it lags behind rival Philip Morris International in the
transition, leaving its shares trading at a vastly lower price-earnings ratio than those of its main competitor.
"What really matters to the stock is how quickly you can replace (cigarettes) with alternative routes for consumers to get a nicotine hit and how profitable that will be," said Chris Beckett, head of equity research
at Quilter Cheviot, a BAT shareholder.
BAT says its newer products will break even years ahead of schedule.
Its vape business is growing, along with its oral
nicotine product, Velo, the market leader in Europe.
However, it faces key challenges.
In the critical U.S. market, authorities have rejected its application to sell some key vape
products and illegal disposable vapes have flooded the market, denting sales of those products BAT is able
to market.
The company is also under pressure from investors to catch up with
rival PMI in another alternative, heated tobacco.
Heated tobacco devices heat up sticks of tobacco resembling cigarettes
but do not burn them in an attempt to avoid harmful chemicals released during
combustion.
PMI's IQOS product dominates this category with some 70% market share.
BAT's rival proposition, meanwhile, lost market share in 2023 in terms of volume, to stand at
18.2% in key markets, the company said, adding that its volume and revenue growth decelerated in the second half in a "disappointing" performance.
LATE ENTRY
It is harder for companies to generate profit from vapes due to intense
competition, said Orwa Mohamad, analyst at Third Bridge.
BAT's late entry into heated tobacco had left it at a disadvantage and an aggressive pricing strategy aimed at winning share from IQOS had yet to bear fruit,
he added.
Where PMI expects two-thirds of its net revenue to come from smoke-free
products by 2030, BAT's ambition, announced on Wednesday, envisages only 50% of its revenue from new categories by
2035.
Its slower progress versus PMI means BAT's shares
have gained little value so far from its commitment to transition, trading at a price-earnings
ratio only slightly above that of rival Imperial Brands.
Unlike the others, Imperial has in recent years pulled
back from heavy investments in new products to refocus on its traditional cigarette business,
leaving a question mark over its longer-term sustainability.
At the same time, BAT is now falling short of Imperial on something investors
have long expected from highly cash-generative cigarette
businesses: healthy dividends and share buybacks.
Cigarette businesses are so profitable they do not need to last
beyond 30 years to make worthwhile investments, Beckett said, adding Imperial's share buybacks are evidence of that.
Imperial's delivery on this core element of tobacco companies' investment
case has helped its shares outperform rivals in recent years, rising 17% since the start of 2022.
That compares with 1% for PMI's stock, and a decline of 13% for BAT.
BAT, meanwhile, disappointed the market on Wednesday when it said it would need to reduce its leverage ratio
further before buybacks could resume.
A buyback would be "amazingly enhancing" to the stock,
Beckett said.
(Reporting by Emma Rumney in London Editing by Matt Scuffham and
Matthew Lewis)
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Lady Gaga and her fiancé Michael Polansky headed out
in Venice, Italy on Tuesday evening ahead of the premiere of
her new film, Joker: Folie à Deux.
The singer, 38, who stars as Harley Quinn in the upcoming
thriller, wore a bright red chiffon gown, with a pleated skirt for a Warner Bros.
dinner.
Gaga, who has been seen flashing her engagement ring, accessorised with a black scarf and
a pair of sunglasses, despite it being dark.
Michael, a tech entrepreneur, opted for a black shirt with a
pair of smart grey trousers.
Folie à Deux will premiere at the 81st Annual Venice
Film Festival later this week, which will see Joaquin Phoenix, 49, reprise his role as
Arthur Fleck AKA Joker.
Lady Gaga and her fiancé Michael Polansky headed out in Venice, Italy on Tuesday evening ahead of the premiere of her new film, Joker: Folie à Deux
The singer, 38, who stars as Harley Quinn in the upcoming thriller, wore a bright red chiffon gown, with a pleated skirt for
a Warner Bros. dinner.
It is the much-anticipated follow-up to 2019's Academy Award-winning
Joker, which earned more than $1 billion at the global box office and remains the highest-grossing R-rated film of all time.
Set for release on October 4, the second instalment finds Arthur Fleck institutionalised at Arkham awaiting trial for his crimes
as Joker.
'While struggling with his dual identity, Arthur not only stumbles upon true love, but also finds the music that's always been inside him,'
a press release shared.
Lady Gaga has been supported by her fiancé Michael in the lead up to the thriller's premiere.
The couple was first romantically linked around New Year's Eve
2019 and later went Instagram official in early 2020.
Polansky is a 2006 graduate of Harvard University and runs Napster founder Sean Parker's Parker Group.
Throughout their years dating, Gaga and Polansky have attended the Super Bowl,
the BAFTAs, and the Critics Choice Awards together.
Wedding plans for the couple are underway and their legal
plan is being negotiated.
Gaga, who has been seen flashing her engagement ring, accessorised with a black scarf
and a pair of sunglasses, despite it being dark
Folie à Deux will premiere at the 81st Annual Venice Film Festival later this
week, which will see Joaquin Phoenix, 49, reprise his role as
Arthur Fleck AKA Joker
Lady Gaga has been supported by her fiancé Michael in the lead up
to the thriller's premiere
Gaga is reportedly seeking a $900 million prenup before she walks down the aisle.
And Polansky, who has a $600 million net worth as
head of The Parker Foundation, is on board.
A source close to the couple told In Touch that 'there are a lot of assets on both sides, and a
prenup will just make everything clear.'
Gaga 'is worth $900 million, so of course there needs to be a
prenup in place,' the insider said. 'And Michael
understands that. He's not resisting it.'
Lady GagaJoaquin PhoenixItaly
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