Some tech report publications have stated that a number of executives in the technology space are now referring Facebook as “Big Tobacco”. The social-networking company, which runs Instagram, WhatsApp and Facebook Messenger has been caught up in a series of controversies around privacy issues and data breach. Critics have also claimed that Facebook is addictive, bad for democracy and overdue for a regulatory reckoning. There are also fears that top performing employees may leave the social networking giant to work at less controversial companies and Facebook could end up paying dearly for mediocre employees to stay on. It is now estimated that adults over the age of 18 are spending 31% less time on Facebook’s core social network compared with two years ago and this will translate into fewer opportunities to sell ads.
It is interesting that Facebook is being compared to tobacco giants. Generally, the tobacco industry is highly regulated as there has been a push by regulators to move towards a smoke-free world. Consequently, there has been a significant reduction in smoking rates in developed countries such as the United Kingdom and Australia. Another area that tends to affect tobacco companies is the tax regime given that governments collect excise duty on cigarettes.
Some Cigarette Brands in Zimbabwe
A major area of concern in Zimbabwe has been that illegal cigarettes that are smuggled into the country have hurt the demand for brands of established companies such as BAT Zimbabwe. The law governing the tobacco industry in Zimbabwe is the Public Health Act. The management team at BAT Zimbabwe has stated on various analyst briefings that they are in constant dialogue with law enforcement agencies on issues relating to the illicit trade of cigarettes in the country.
The cigarette market is Zimbabwe is estimated at over 1.845 billion sticks per year, implying consumption of 123 cigarettes per person per year. BAT Zimbabwe produces about 1.23 billion sticks annually. The company controls the bulk of the market share and the closest competitor is Pacific. Despite the tight regulations in the global cigarettes industry, consumption is predicted to increase in many low- and medium income countries due to dynamic economic development and continued population growth. For example, the number of tobacco smokers is set to increase by 24.0 million in Indonesia and by 7.0 million in Nigeria from 2015 to 2025. Piggy notes that cigarette consumption is also associated with lower socioeconomic status.
On the Zimbabwe Stock Exchange (ZSE), BAT Zimbabwe is well placed to benefit from the steady increase in consumption expenditure likely to emanate from the young population in Zimbabwe. The tolerant attitude of Zimbabweans in general towards smoking, brand loyalty and the habit-forming nature of cigarette smoking are all key factors that help insulate the company. The company’s strong cash generation, low capex, nil gearing and generous dividend policy also make the stock an attractive dividend play. TIP: Dividend Income is one of the 7 Streams of Wealth;
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