After a major British American Tobacco PLC (LSE:BATS) shareholder urged the company to move its primary listing to the US, analysts at Jefferies said it is “a move that would make sense” and could free it from tighter UK restrictions on the cannabis market.
Close to 60% of the company’s profits come from the US, whilst only 1% is from the UK and the bank, which is headquartered in New York, believes that the British shareholder base is declining.
If the FTSE 100-listed tobacco company moved to the States it would face "less pushback" from ESG regulations, have an investor base with more understanding of reduced-risk products (RRP), have increased strategic freedom and gain access to larger assets under management, the Jefferies analysts argued.
“Current appreciation of RRP is a headwind on tobacco stocks but it’s going to be the key driver of sustained re-rating in the years ahead,” they added, noting the size of the market in the US was also likely to be important.
These next-generation products in the US currently make up 30% of total nicotine sales, with the US vape market is the largest in the world.
In 2021, the US e-cigarette market was worth US$7.3bln, far outsizing the US$3.5bn UK market.
If the UK-based company wants to explore new ventures in the cannabis market it would be better equipped to do so in the US, the analysts argued.
The UK law currently prohibits a company from being listed if the profits are sourced from recreational cannabis, even if it’s earnt in a country where it's legal.
“Although similar restrictions exist in the US currently, these are likely to be addressed over the next year or so,” said Jefferies.
The bank still rates BAT a ‘buy’ and targets a £41 share price, almost a 40% upside to Friday’s opening value of 2978p.