British American Tobacco stocks have been at the lowest level for more than four years on news about a possible ban on menthol cigarettes in the US, eliminating products like Newporta that create even a quarter of the company's profits.
Shares fell by as much as 11 percent in London, destroying $ 8.4 billion ($ 10.8 billion) of market value. US Food and Drug Commissioner Scott Gottlieb plans to continue with new tobacco restrictions, the Wall Street Journal reported on Friday, citing agency officials. This could remove the void in the ban of flavor that allowed menthol cigarettes to continue to sell.
"BAT is the most prominent name for potential risk," wrote Richard Taylor, an analyst at Morgan Stanley, who estimates that American menthol cigarettes account for 25% of total earnings.
Potential ban increases FDA's youth smoking campaign. Dropped cigarettes were previously removed from the market, and now the agency takes a more difficult approach to alternatives. The FDA may impose restrictions on the sale of many e-cigarette products in the United States, a senior Bloomberg News official said last week.
The FDA has directed tobacco flavored products while studies show that teenage smoking teenagers consume almost twice as many weeks as compared to non-menthol users. Not all analysts think the ban is likely. Jefferies analyst Owen Bennett said that such a move was unbelievable and that it would take years to implement.
Tobacco companies would probably pose a legal challenge that would delay the process, said Gerry Gallagher, analyst at Deutsche Bank.
The BAT stock drop shows that while the Lucky Strike Maker is expanding into steam and heated tobacco products, the company is still very active in cigarettes. Traditional products make up the bulk of revenue. The company did not respond promptly to the comment request.
Newport is the largest BAT brand of menthol and accounts for about 40 percent of US sales, said Duncan Fox, an analyst at Bloomberg Intelligence. Tobacco companies have won an exception for menthol, the most popular flavored cigar and the one preferred by black smokers when the federal law banned other flavors in 2009.
BAT shares this year this year fell by 40 percent, the biggest decline in at least two decades. They had only two annual drops in the past 19 years.
Imperial brands decreased by as much as 5%. Winston's producer gets about 15% of menthol brand earnings such as Kool and Salem in the US, Jefferies says. The share is about 20% for Altria Group, which sells this menthol version of Marlboro cigarettes in that market, according to the company. Altria dropped by 3 percent on Friday after the report.
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