British American Tobacco and Diageo

“The FTSE 100 has been going through a fairly stable period this month, if you ignore the first week’s trading. Stability is good for rebuilding investor confidence as we approach the final quarter of the year and bright spots on the London market on Thursday include mining, banks and travel stocks,” says Russ Mould, Investment Director at AJ Bell.

British American Tobacco

“Times are changing for tobacco companies as the public increasingly shifts to e-cigarettes, and with that comes news that the UK’s largest quoted tobacco company, British American Tobacco, is also changing its chief executive.

“Nicandro Durante is bowing out after nearly 37 years with the business and seven years at the top. The 62 year-old is retiring next year and his successor will need to have a lot of answers for shareholders who have seen the value of their investment erode significantly this year.

“Nearly one third of British American Tobacco’s value has been wiped off since January amid market concerns about tougher regulation, declining cigarette volumes, increased health awareness and decreasing social acceptance of smoking.

“Large tobacco companies like British American Tobacco have been investing in next-generation products to adapt to the changing market landscape, but competition has also been increasing.

“Durante’s successor, once appointed, will inherit a development plan that is far from in its infancy, so we may not see any radical changes, at least not in the early days of them taking the role.”

Diageo

“The warning of an emerging markets currency hit delivered by spirits maker Diageo today illustrates the conundrum facing multi-national companies.

“In order to deliver growth these firms need to take their products to new geographies, but this probably means accepting that some less mature markets will deliver volatile revenue in the short term due to foreign exchange movements and other factors.

“In the long term having a footprint in the developing world has to be the right strategy for Diageo and the £45m impact on full year operating profit which is forecast at current exchange rates should be easily absorbed.

“After all, consensus estimates put operating profit for the 12 months to June 2019 at upwards of £4bn and underpinned by brands such as Johnnie Walker whisky, Guinness and Smirnoff vodka the group remains on track to hit margin improvement targets.”

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