What future for listed tobacco firms ?
As a preamble to the present feature, Asset News specifies that in an attempt to balance views, comments were sought from the Dutch association of tobacco retailers NSO and the confederation of European community cigarette manufacturers (CECCM) on the tobacco divesting momentum in the Netherlands as well as on whether listed tobacco companies have a future or not. The former did not provide comment by the time of publication whilst the latter declined to comment.
Dutch investors interviewed by Asset News quite share a pessimistic view regarding the outlook for tobacco listed companies.
Faryda Lindeman, senior corporate governance specialist at NN IP, does not not believe tobacco firms have a future as publicly listed companies and that they are likely to turn private at some point.
"However, they do survive only because demand for tobacco is increasing in emerging markets whilst it is decreasing in developed markets. If Indonesia or Philippines were to shift legislation on tobacco, there might be a turning point for listed tobacco companies. MSCI has already made it difficult to include tobacco companies in benchmarks, especially ESG ones and some research providers do not cover the sector anymore. Next step at a European level may be the ban of tobacco advertising from streets", says Lindeman.
We think that listed tobacco companies will increasingly struggle.
Peter Ferket, head of investments and member of the executive committee at Robeco, adds: "At the right price, there will always be investors interested to invest, either privately, or publicly. We see the tobacco industry is increasingly socially disadvantageous. A game changer can be if also the large index providers decide to exclude it from the main indices."
Ferket believes more shall be done to prevent investment in tobacco companies, citing the Tobacco Free Finance Pledge, that gathers global finance, health, government and civil society with the aim of accelerate progress toward a tobacco-free future.
Neither have listed tobacco companies a future on stock exchange for Aegon Asset Management. "We think that they will increasingly struggle and it is likely that companies will increasingly move to private ownership. It will mean that it will then be up to governments to address smoking through regulation, prevention, etc", says the firm.
On the topic, Kempen's senior responsible investment advisor Danny Dekker comments: "We see that more investors are divesting from the tobacco industry, the effects need to be seen."
In a similar view, Asha Khoenkhoen argues whether tobacco companies have a future as listed companies depends on other investors’ moves.
"We were not the first Dutch pension fund to cut tobacco investments but still our institutional peers were interested by our move.”
As of 30 April 2019, the MSCI World Tobacco Index stood at 309.51 points vs 210.37 points to the MSCI World Index.
From 30 April 2018 to 30 April 2019, the MSCI World Tobacco Index posted negative returns of -9.38% (vs. +4.42% for the MSCI World Index). On a three-,five- and ten-year period to 30 April 2019, the MSCI World Tobacco Index underperformed the MSCI World Index in terms of annualised returns.