Effective bans on smoking, similar to that proposed by Prime Minister Rishi Sunak earlier this week, will be difficult to introduce in many countries, Barclays analysts have said.
Under the proposed plans, those born in or after 2009 would be unable to ever legally purchase cigarettes in the UK - so essentially as they grow up, the smoking age grows with them until no one can buy the products.
Discussing the potential hit to Imperial Brands PLC (LSE:IMB), Barclays commented: “Clearly, investors are nervous that this proposal could spread to other countries.”
For the tobacco giant, the rules in the UK would likely just accelerate the rate of annual pre-tax earnings decline which has appeared since 2012, as the number of smokers declines.
This would see pre-tax earnings fall by 6% rather than the 4% already anticipated from 2028, Barclays tipped.
“But, it has served to erase £1.5bn of Imperial Brand’s market cap over the last two weeks,” the bank added, given recent share price losses for Imperial Brands following speculation.
Difficult to introduce elsewhere
Whether an eventual ban is actually passed in the UK remains to be seen, though either way Barclays reckons other nations would have a harder time implementing such legislation.
In the US, rules would have to pass through both the House of Representatives and the Senate, which has “historically proven very hard”.
European Union member states are unlikely to be subject to such tough rules under existing proposals, meanwhile, with discussions on new tobacco directives not stretching this far.
Individual European countries and US states implementing their own rules would also be unlikely to work, Barclays said, given open borders in both regions.
“In our view, the only country where this proposal could be adopted over the next few years is Australia,” analysts said.
Britain’s proposed new rules on smoking, which themselves would have to be introduced in four separate countries, would echo similar legislation in New Zealand, where it will be introduced in 2027.
“The UK has been a challenging market for Imperial Brands for years,” Barclays acknowledged, pointing to 2012’s peak earnings of £630 million for the firm in the country.
Imperial Brand’s announcement of a new £1.1 billion share buyback programme is less than expected meanwhile, the broker said, with recent falls having presented a missed opportunity for the company to repurchase more stock at a cheaper rate.
Shares in the FTSE 100-listed tobacco firm rose by 2% to 1,674p on Friday.