On the Global front:
The Framework Convention for Tobacco Control (FCTC) welcomed an era of global tobacco regulations.
FCTC proposed tax measures, graphic pictorials, and restricted advertisement to curtail the health effects of smoking.
Subsequent to the ratification of FCTC in 2005, global consumption volumes were on a steady decline by an average of 2.6 percent between 2008 and 2015.
However, tobacco companies acted fast to cushion their revenue by increasing retail prices, the effect of which was an increase in retail value by an average of 40 percent in a similar period.
Investment in innovative technology has picked pace to assure consumers of better and lesser risk products. Additionally, to maintain and gain market power, Mergers and Acquisitions (M&A) activity has led to industry consolidation mostly controlled by a few tobacco companies including BAT Plc, Phillip Morris, China National Tobacco Company, Imperial Tobacco and Japan Tobacco. These five globally control approximately 83% of volumes consumed globally.
East Africa tobacco market:
In East Africa, some of these global companies dominate tobacco markets (above 75 percent market share) through their subsidiaries; BAT Plc through BATK in Kenya and BATU in Uganda and Japan Tobacco through TCC in Tanzania.
Kenya passed the Tobacco Control Act 2007, which has had difficulties in implementation until February 2017 when the Appellate Court quashed contestations by the tobacco companies. This paved way for implementation of Tobacco Control Regulations 2014.
In this regard, BATK has been valued at KES 666.37, a SELL recommendation with a 16.7% downside against the current market price of 800 shillings.
Uganda’s Tobacco Control Act 2015 has some provisions that are stricter than the Kenyan set, like the complete ban on innovative products like smokeless cigarettes and e-cigarettes. The World Health Organization (WHO) has observed that Uganda is very active in enforcement of tobacco laws. By 2025, Uganda is estimated to have cut consumption by 38 percent (meeting the globally agreed 30 percent cut) compared to Kenya’s 21.4 percent and Tanzania’s 18.7 percent.
The company has, therefore, been valued BATU at UGX 1,609.48, a SELL recommendation with a 94.6% downside against the current market price of UGX 30,000.
Tanzania’s Tobacco Products (Regulation) Act 2003 is receiving a fresh review since most of its provisions are below some FCTC provisions and comparatively to its two neighbors. In Tanzania, tobacco advertisements are fairly unrestricted including broadcast on roadside billboards.
From our analysis, TCC is the most fairly valued tobacco company at TZS 9,018, a HOLD recommendation with an 8.0% downside against the current market price of TZS 9,800.
This analysis is according to Genghis Capital Investment Bank