Fidelity has claimed that a UK smoking ban will not affect the income potential of tobacco stocks as companies will increase their prices in emerging markets. They believe that the valuations of tobacco stocks had already factored in the potential re-rating that may follow a smoking ban in the UK, but since 70-80% of cigarettes are sold in emerging markets, they see huge potential for profits to rise in these areas. An enormous rise in cigarette prices in Europe is cited as the main reason for profits in recent years.
As governments in countries such as Russia and Egypt try to raise their excise revenues, Fidelity expects tobacco firms to take advantage.
Our view
In other areas of the EU where smoking bans are in place, e.g. Ireland, the ban has not affected prices, demand or the fact the people just stand outside to smoke.