Tag: morgan stanley

  • ‘BAT key beneficiary of Juul MDO’

    ‘BAT key beneficiary of Juul MDO’

    Photo: BAT

    The removal of Juul products from the U.S. market would boost the prospects of British American Tobacco, create opportunities for Philip Morris International but represent a problem for Altria Group, according to Morgan Stanley.

    In a letter to investors, the financial institution evaluated the impact of the U.S. Food and Drug Administration’s leaked plans to deny Juul Labs’ premarket tobacco product application (PMTA). While the FDA has not issued a formal statement yet, shares in Altria Group were down more than 9 percent in the immediate wake of the news. Altria owns about a third of Juul Labs.

    According to Morgan Stanley, Juul is Altria’s only exposure to the growing vapor category. While a Juul marketing denial order (MDO) would give Altria an opportunity to terminate its noncompete agreement with Philip Morris International, allowing it to step-up its vapor product research and development or acquire vapor technology, the company would not be coming from a position of negotiating leverage, according to the investment bank.

    “In addition, there are few larger scale independent e-vapor assets on the market,” wrote Morgan Stanley.

    The investment bank believes that removing market leader Juul from U.S. store shelves would create opportunities for other products, such as PMI’s IQOS heat-not-burn device, which has already received PMTA approval.

    The key beneficiary of a Juul MDO, however, would be British American Tobacco, according to Morgan Stanley.

    Several of the company’s products have already received PMTA authorizations, the investment bank points out. Though its Vuse brands, BAT recently overtook Juul as the leading U.S. e-cigarette player with a market share of more than 33 percent. The company has gained significant momentum in the category over the past 24 months and a Juul MDO could lead to further BAT market share gains, according to Morgan Stanley.

  • Morgan Stanley: BAT Underappreciated

    Morgan Stanley: BAT Underappreciated

    Photo: BAT

    The growth potential of British American Tobacco (BAT) is underappreciated, reports Sharecast, citing Morgan Stanley. The investment bank believes BAT is better able to offset the challenges in the combustible cigarette market than many investors are willing to give it credit for.

    The key to its thesis is BAT’s shift from a combustibles business to a nicotine play.

    “We see a significant opportunity in BAT’s new model, just as the shares and investor interest hit multi-year lows,” Morgan Stanley wrote in a statement.

    BAT’s user base has grown from about 143 million in 2017 to approximately 146 million by 2019 and might reach roughly 155 million by 2030, according to Morgan Stanley.

    Management’s ambition, announced in April, is to have 50 million non-combustible users by 2030, up from 11 million at the end of 2019, which would more than compensate for the falling number of smokers.

    The broker also highlighted the 50:50 split in BAT’s volumes between emerging and developed markets, strong management and anticipated stable earnings growth of 4 percent to 8 percent over 2020-2-2025.

    Its analysts also argued that the dividend payout was “largely secure” as the company refinanced debt.

    Furthermore, the company’s improved position in U.S. next-generation-products allows it to capture users migrating to other products if Washington bans menthols, according to Morgan Stanley.

  • Morgan Stanley shares thoughts on e-cigs

    In a report summarizing “key thoughts” on e-cigarettes, financial services provider Morgan Stanley acknowledges it has been surprised by the success of e-cigarettes, given the commercial failures of other innovative products such as Accord and Eclipse and the slower-than-envisioned development of tobacco segments such as snus and dissolvables.

    E-cigarettes have already achieved volume equivalent to about 1 percent of the U.S. market. Morgan Stanley attributes the sector’s success to effective nicotine delivery, broader consumer acceptance of technology, widespread consumer perception of less health risk versus conventional combustible products, growing societal pressure against cigarette smoking and the current regulatory vacuum, which allows for aggressive marketing.

    At the same time, the bank notes that e-cigarettes won’t necessarily benefit established tobacco companies. The potential business risks to the traditional industry include cannibalization of tobacco cigarette sales volumes, FDA regulations preventing the marketing of e-cigarettes under tobacco cigarette name brands and uncertainty about the capacity of e-cigarettes to develop the brand equity and consumer loyalty that is typical for traditional cigarettes.

    According to Morgan Stanley, Lorillard is best positioned to take advantage of the new segment because it owns the current e-cig market leader Blu Ecigs, while Reynolds American “probably has the most to gain from cigarette industry discontinuity.” Altria, as the dominant cigarette incumbent, has the most to lose.

    Future success for e-cigarettes, according to the investment bank, depends on the scale and pacing of technological and product performance improvements, along with ultimate FDA regulation and federal/state excise tax structure, the analyst said.

     

     

  • Australia’s plain packaging an “anomaly”

    Morgan Stanley analysts believe the spread of plain packaging beyond Australia may be “very slow.”

    Capital markets have been concerned that Australia’s plain tobacco packaging law–the world’s first–could spread to other nations, ultimately commoditizing the tobacco category by hurting brand equity and reducing manufacturers’ pricing power.

    The analysts base their optimism on the facts that there is no evidence that the measure will reduce tobacco use or youth initiation and that such legislation appears both “extreme and disproportionate.”

    They also point out that plain packaging will “almost certainly” fuel the black market, thus reducing tax revenues, and that the legislation arguably violates various international trade rules.

    The analysts suggested that the nation’s geographic positioning may have led policy makers to believe that the country would be largely immune to contraband.

    Although the Commonwealth still faces strong legal challenges under a Bilateral Investment Treaty with Hong Kong and the World Trade Organization, the failure of the industry’s constitutional challenge in the country’s High Court “reflects the unique nature of Australia’s ‘protection’ of trademarks and intellectual property,” the analysts said.