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NHS Launches Stoptober, But Experts Say Buy Tobacco Shares

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The start of thousands of smokers' journeys to quit smoking for good began on Monday but investors say there's never been a better time to buy shares in tobacco.

Stoptober, backed by Cancer Research UK and the British Heart Foundation, hopes a united effort will help many of England's eight million smokers to quit successfully.

Research shows people who stop smoking for 28 days are five times more likely to stay smoke-free.

Smokers who join Stoptober are given free support to help them quit, including a mobile phone app that can monitor quitters' progress and offer daily motivational texts to keep them on track.

There is also a Stoptober Facebook page where people can exchange ideas and get additional tips and advice.

smoking

Will the number of UK smokers drop drastically? Manufacturers think not

But perhaps smokers looking for somewhere sensible to stick their new cash - which would have been spent on fags - could invest it in tobacco companies' shares?

Ethical? Maybe not, but tobacco has long been recognised as a solid performer in terms of gaining returns, particularly during times of economic stress - typical returns range from 7% to 16%.

Charles Stanley's tobacco analyst, Tina Cook, told Huffington Post UK that tobacco companies make for a good investment as its strong industry pricing power has continued to more than offset the smaller volumes of sales despite the challenging economic conditions

"The sector boasts strong defensive qualities, global reach, and secure dividends underpinned by robust cash flows," she added.

"A recent surge in news flow around tighter tobacco legislation in mature markets has been negative, witnessed by recent share price underperformance, but growth continues to be fuelled by increased trading in emerging markets."

Research by Euromonitor International in 2009 showed consumers do not tend to smoke less in times of trouble and stress and that selling tobacco products is intrinsically profitable and the business is a legendary cash flow generator, making it a savvy investment choice.

fags

Cigarette share prices perform well even in tough economic climates

In addition, the traditional strength of tobacco brands means that prices generally tend to remain robust and, unlike many other products, it's not believed cigarettes will not be overtaken by new technology, despite pushes for electronic alternatives.

Having said that, British American Tabacco has taken steps to invest more than £100m to develop smoking alternatives as new tobacco bans and higher taxes persuade more smokers to extinguish their cigs.

Martin Deboo, analyst at Investec Securities, said Investec currently recommends investors to buy shares in British American Tobacco and Imperial Tobacco.

The negative sentiment surrounding some of the major tobacco markets was in danger of being overplayed, he said in a recent analyst note.

"Russia is a big market, but also a finite one at around 8% of BAT & IMT’s sales," he said, referencing fears that a ban on smoking in public places in Russia is about to come into action.

Russia has one of the highest rates of smokers in the world: around 60% of Russian men and 22% of women smoke, making it the second largest tobacco market, behind China.

"Plain packaging in the UK is a threat only to Imperial Tobacco," Deboo continued.

"We have been arguing that the share price impact is finite and that Imperial could be a relative gainer from any move due to its strength in value cigarettes and roll your own/make your own tobacco."

cig bin

Even smoking in public places bans are not thought to significantly affect the future profits of tobacco giants

Controversial

A number of high profile investors have been criticised in the past for investing in tobacco companies, particularly if they are involved in maintaining or improving the welfare of people.

Norfolk County Council hit the headlines last week for deciding to maintain its pension scheme investments in tobacco.

The £2bn scheme invests £25.9m in tobacco firms, and said it would continue to do so as "the vast majority of global investors choose not to exclude tobacco from their portfolio".

Martin Dockrell, director of research and policy at anti-smoking group Ash, told the BBC: "No-one is claiming that this in not a complicated issue but there is nothing to stop councils adopting what is called an 'ethical tie break'.

"In that case whenever the fund managers have a choice between a tobacco investment and another investment likely to turn an equal profit they will opt for the non-tobacco option."
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Filed by Charlie Thomas
 
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