Investors look to the future

As the year draws to a close, investors are looking at where the wise money should go in the ecig market and tobacco company manoeuvring.

by Dave Cross
Jan 5, 2015

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Commentators have noted that the traditional cigarette market remains in decline but two of the big three Big T firms saw a 38% rise in market value as a result of merger. Following Reynolds American joining Lorillard, they now command 42% of the American cigarette market. Big Tobacco is now a two-company market with Altria holding 50% of the nation’s smokers in their grip.

The creation of this duopoly presents problem to the merged companies even though they have sold or are selling off a number of brands – including Blu electronic cigarettes to Imperial Tobacco. Despite Blu, Reynolds sees its future firmly in the vaping and is going all-in on the gamble. The company believe that the Vuse cigalike brand will overtake Blu, especially as Blu lost market share and dropped to under 30% from a previously dominant 50%.

Two factors stand to impact on Big T’s ability to penetrate and grow this hi-tech segment. Firstly, they are sending almost all of their profits back to investors by way of share dividends (resulting in them not having the money free for operation investment) and also the tendency for Gen1 users to switch to Gen2/3 devices.

The growth in the Gen2/3 market has witness strong growth over 2014 whereas cigalikes have been in constant decline. Moreover, our style of vaping is made up of a multitude of small, independent companies. Will 2015 see some aggressive purchasing of some of our well-loved mod and atomiser brands?

As a consequence, investors are being advised to remain highly cautious when considering purchasing Reynolds stock. In fact, it goes beyond being cautious for some commentators; the Motley Fool investment guide website has predicted Reynolds American as being one of the three stocks most likely to tank on 2015.

Electronic Cigarettes International is currently playing out the future predicted for Reynolds. They run the El Rey, FIN, Vapestick, Victoria, Victory and VIP ecig brands. In the face of a continued run on market value VIP rolled out a ‘Blending Boutique’ in London. Customers are able to approach a ‘taste technician’ and custom blend flavours for their ecig.

The aim of this was to reinvigorate confidence in the company and paint it as being innovative and fit for the future. Rather than stopping the fall in share price, it accelerated. The situation resulted in Electronic Cigarettes International pulling a share issue for the Victory brand. Shares that at one point traded for $19.99 are now worth $0.08 leading analysts to state that the current situation for the company is “grim” with no indication of it getting better in 2015.

This has conspired to drive Big T towards an alternative vaping market. The move is on to support the legalisation of recreational marijuana across the United States. They see the potential market as being worth $50billion p/a and Reynolds/Altria see the possibility of revenues returning to 2013 levels. The success of this will depends upon their ability to influence legislation although a number of States are considering following Columbia's recent lead.

Dave Cross

Journalist at POTV

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Dave is a freelance writer; with articles on music, motorbikes, football, pop-science, vaping and tobacco harm reduction in Sounds, Melody Maker, UBG, AWoL, Bike, When Saturday Comes, Vape News Magazine, and syndicated across the Johnston Press group. He was published in an anthology of “Greatest Football Writing”, but still believes this was a mistake. Dave contributes sketches to comedy shows and used to co-host a radio sketch show. He’s worked with numerous vape companies to develop content for their websites.

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