In an unexpected move, British American Tobacco (BAT) is granting traditional cigarettes a surprisingly prolonged existence. The tobacco giant, valued at $65 billion and renowned for brands like Camel and Lucky Strike, recently announced a substantial £25 billion writedown on its U.S. cigarette brands. Intriguingly, BAT estimates that the economic life of these brands will persist for approximately 30 more years.

This sizable impairment aligns with CEO Tadeu Marroco's ambitious vision of cultivating a "smokeless world," aiming to derive 50% of the company's revenue from non-traditional cigarettes by 2035. Marroco's strategic plan not only seeks to transform BAT's business model but also aims to address the company's undervaluation. Presently trading at a meager 6.4 times its projected 2023 earnings, as per LSEG forecasts, BAT lags significantly behind industry peer Philip Morris International (PMI), which commands a multiple of over 14 times.

The valuation gap is attributed, in part, to BAT's perceived lack of urgency in phasing out combustible cigarettes, a move aggressively embraced by PMI. The latter anticipates that non-traditional cigarettes will constitute more than 50% of its revenues by 2025. To bridge this valuation divide, Marroco must instigate a more assertive and accelerated transition toward a smokeless future.

As BAT navigates this intricate transformation, the company's trajectory under Marroco's leadership will undoubtedly shape its market standing and valuation. The tobacco industry's evolution toward reduced-risk products and alternatives is a delicate dance, and BAT's strategic moves will be closely scrutinized in the coming years. (By Aimee Donnellan)

In conclusion, British American Tobacco's recent decision to extend the economic life of traditional cigarettes, marked by a substantial £25 billion writedown, raises intriguing questions about the company's trajectory. CEO Tadeu Marroco's ambitious vision for a "smokeless world" and the goal of deriving 50% of revenue from non-traditional cigarettes by 2035 reflects a strategic shift aimed at revitalizing the company's valuation.

However, the apparent lack of urgency in phasing out combustible cigarettes has contributed to BAT's undervaluation compared to industry peers, notably Philip Morris International. The valuation gap underscores the need for a more assertive and accelerated implementation of BAT's smokeless plan to remain competitive and appeal to investors.

As BAT navigates this transformative journey, the leadership's decisions and the company's ability to adapt to evolving market dynamics will play a pivotal role in shaping its future standing and market valuation. The tobacco industry's paradigm shift towards reduced-risk products adds complexity to this strategic transition, making BAT's next moves crucial for its success in a changing landscape. The coming years will provide valuable insights into whether BAT can effectively transition to a smokeless future and close the gap with industry counterparts. (By Aimee Donnellan)