Plans for Vuse Alto
The double-digit decline in tobacco manufacturers’ share price since April 19 was spurred mostly by Philip Morris International’s disclosure that
it experienced a “less rapid than initially projected growth” in first-quarter sales of Marlboro Heatsticks in the pivotal market of Japan.
The Heatsticks are based on PMI’s iQOS heat-not-burn technology.
Since the PMI Heatsticks news, Altria Group Inc.’s share price has fallen as much as 14.7 percent, BAT has dropped as much as 14.1 percent and Philip Morris International as much as 26.1 percent.
“The industry-wide sell-off in response to Philip Morris’ update on the iQOS shows how much tobacco investors are counting on a successful transition to smoke-free products like vapes and heat-not-burn devices to replace income from cigarettes,” said Jeremy Bowman, a contributing analyst to The Motley Fool.
Bowman said Juul represents the global tobacco manufacturers’ biggest competitive threats since “it offers a product that has become synonymous with the activity itself — Juul is often used as a verb to mean vape.”
“The company is now raising money at a $15 billion valuation. The best move for the tobacco giants may be to buy Juul, form a strategic partnership with it, or make a copycat product.”
Fontem Ventures, which makes blu eCigs for ITG Brands LLC, announced July 13 a partnership with Purilum LLC, which makes e-juice concentrates for vaping, for their Salt of the Earth nicotine salts product line.
Oberlander said last week that Reynolds is preparing for an
August national distribution launch of Vuse Alto, its version of the “pod mod” second-generation e-cig.
“It’s surprising to see such as solidly profitable industry sell off like this in just six months,” Bowman said.
“But the investor response makes it clear that tobacco stocks may no longer be the safe bet that they have been for generations.”
Did BAT overpay for Reynolds?
Stephen Pope. managing principal with London-based financial-service firm Spotlight Ideas, said that while “BAT is trying to be positive, there is a sense that overall the outlook for the industry has soured in recent months.”
“Of course, BAT has seen growth from its takeover of Reynolds American,” Pope said.
“However, it is trying to manage a broader secular decline in cigarette demand throughout many regions of the world market.
“If one believes some forecasts that net income is forecast to diminish by 12.6 percent each year for the next five years, BAT needs to leverage Reynolds to claw back market share in the vape market of the U.S. and beyond.”
Tony Plath, who recently retired as a finance professor at UNC Charlotte, said BAT’s decision to pay $54.5 billion for the remaining stake of Reynolds appears to be a “big-time over-payment, especially since 2018 industry performance really makes it look like this is a sunset industry.”
“The failure to execute effectively their original marketing plan for their acquired Reynolds brands” is another missed revenue opportunity for BAT.
“If BAT had a do-over on this deal, and they were able to close in 2018 rather than 2017, you can bet they would have acquired the remaining interest of Reynolds at a much more reasonable price,” Plath said.