15th May 2023 11:59
(Alliance News) - British American Tobacco PLC's announcement of its chief executive's sudden and unexpected departure raised market eyebrows on Monday, while analysts believe his replacement has a lot of work to do.
BAT said Finance Director Tadeu Marroco will take over as chief executive, replacing Jack Bowles, who is stepping down immediately.
The London-based maker of cigarettes and vaping products said Marroco has been with the company since 1992 and was appointed to the board in 2019.
To AJ Bell investment director Russ Mould, the news suggests "something is not right" at BAT.
"It's never a good look when a company says its chief executive is leaving with immediate effect, and after only four years in the job," Mould said.
The announcement raises "a lot of questions" as to what's happening behind closed doors at the Dunhill cigarette maker, Mould contends.
"There have been no profit warnings or activist investors calling for change. The only high-profile calls from shareholders have been a request by GQG Partners to move its stock listing from London to the US in the hope of getting a higher valuation," Mould remarked.
However, it is clear that Marroco has a few "burning challenges" to contend with, according to Derren Nathan, head of equity research at Hargreaves Lansdown.
Last month, BAT said it will pay a USD635.2 million penalty related to a probe of the company's historic business activities in North Korea.
The market hasn't taken the news well, Nathan said.
"With USD540 million already provided for in the company's books, most of this should have been in the price already," he said. "However strong governance needs to be front and centre of Marroco's priorities going forward."
While BAT has doubled down on its focus on New Categories - which include vapour products, tobacco heating products, and oral nicotine pouches - these products have attracted regulatory scrutiny of late.
Australia recently decided to ban imports of non-prescription vapes, as calls grow for regulation of vape products across the world.
"Many countries around the world are paying closer attention to health and the environment, meaning tobacco manufacturers need to show they are doing more to evolve," AJ Bell's Mould said.
It could be that outgoing CEO Bowles was not successful in pushing the firm's transformation agenda, Mould suggested.
"[Bowles] is thanked for being the architect of a new strategy, but there is reference to needing someone new to take the business to the next level. Tobacco and vaping are highly competitive markets, and it will require some bright thinking to stand out from the crowd," he said.
Marroco is likely to be considered to be a safe pair of hands, given his long tensure at BAT and close knowledge of the firm's finances.
"A lot of investors have turned their back on the sector due to [environmental, social & governance] concerns, which explains why shares in stocks like BAT are relatively cheap and offer high dividend yields. They're deeply unloved," Mould said.
BAT benefits from strong cash generation, which Bowles managed to maintain despite a shrinking market, HL's Nathan noted.
"Hopefully that cash generation will remain high up on the agenda and, with buy backs taking a back seat for now, the dividend is not overly ambitious," Nathan said.
Shares in BAT were up 0.4% at 2,719.50 pence each in London on Monday late morning. The stock is down 21% over the past 12 months.
By Elizabeth Winter, Alliance News senior markets reporter
Comments and questions to [email protected]
Copyright 2023 Alliance News Ltd. All Rights Reserved.
Related Shares:
British American Tobacco