The European tobacco sector is attracting support from investors

Listed tobacco companies have a capitalisation of more than US$ 41.25 billion, just two years after the tobacco sector emerged as a separate entity. Conglomerates have demerged leading to the flotation of Imperial Tobacco from Hanson, Swedish Match from Volvo and Gallaher from American Brands (renamed Fortune Brands to erase all connection with the tobacco industry). At the same time, tobacco monopolies have been or are being privatised in France, Spain, Italy, Portugal and Austria. Furthermore BAT Industries may possibly demerge the financial services.
Despite dangers of litigation for tobacco companies, analysts believe that the sector as a whole is undervalued. BAT is seen to have excellent prospects with litigation fears exaggerated and because the business trades on a very low price earnings ratio of 3.5. In France, the government has permitted tobacco price rises rather than an increase in duty, which should bolster profits for Seita. In Spain margins have been improved for Tabacalera and smuggling reduced, which is expected to boost shares.