Cheers To That

Booze 'n' fags

Image source: M.Stasy, Vladimir Prusakov - Shutterstock

What's going on?

The world’s largest beer brewer, AB InBev (ABI), and the world’s second-biggest cigarette maker, British American Tobacco (BAT), both reported annual results which puffed past investors’ forecasts on Thursday.

What does this mean?

ABI’s fourth-quarter sales hopped up in almost every region – and investors raised a glass to the company’s promise of even stronger growth this year, sending its shares up 4%. The brewer is thirsting after a way to reduce the $100 billion debt it racked up buying its biggest rival in 2016; last year’s efforts were watered down by falling currency values in emerging markets which translated into fewer revenue dollars.

Currency woes were also a drag for BAT’s 2018 earnings – but the tobacco firm still managed to burn through investors’ forecasts and announce a higher-than-expected dividend.

Why should I care?

For markets: Confidence is key, but so is pragmatism.

Both companies made upbeat statements about their prospects for 2019 – but investors appeared only to believe ABI. While BAT is unlikely to have been smoking anything too crazy – unlike rival Altria – investors probably sold off its stock, which fell 2% on Thursday, due to the continued uncertainty about its future in the US. Tighter regulation – primarily targeted at teens’ choice, e-cigarettes – threatens to stub out its popular menthol-flavored ciggies too.

For you personally: Sin City has its virtues.

Shares of companies which enable vices like drinking and smoking are sometimes referred to as “sin stocks”. Some investors avoid investing in such companies for ethical or religious reasons – and investment advisors, be they machine, human, or hybrid, can point such investors in the direction of “socially responsible” alternatives with fewer negative effects (like alcoholism or organ damage). But those undesirable characteristics are precisely what make such companies attractive to other investors: customers are often hooked on their products, and would-be competitors may have too many scruples. Cigarette prices have risen relentlessly around the world, yet BAT still sold 5% more of its most important brands’ cigarettes last year than it did in 2017.

Originally posted as part of the Finimize daily email.

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