BAT chief: moving to US not a ‘no-brainer’ as he defends London listing

The chief executive of British American Tobacco has dismissed the idea of moving the company’s listing from London to New York as a “distraction”, after it emerged that the top-10 shareholder who pushed for the change had exited his position in the cigarette maker.

Tadeu Marroco told the Financial Times that a listing switch “would create a lot of distraction internally”, and he was “not sure the benefit would be as evident as some suggest”.

Last year, Rajiv Jain, chair and chief investment officer of $105bn US investment group GQG Partners, urged BAT to switch its primary listing and clashed with management over its decision to suspend the company’s share buyback programme.

Jain’s argument focused on the fact that rival cigarette maker Philip Morris International, which GQG also owns a stake in, trades at a much higher earnings multiple.

According to two people familiar with the details, GQG, which at its peak owned 4 per cent of BAT stock, sold out of the company in July last year, frustrated by its refusal to move and take advantage of bigger pools of capital in the US, particularly for tobacco stocks. In Europe, the dominance of investing within an environmental, social and governance framework means there is very little capital prepared to invest in the tobacco industry.

Asked if a change in listing was possible during his tenure, which started almost a year ago, Marroco said: “I don’t think that in this period of time, we should be focused on this.”

He added that there were “many other things” he needed to do, including working on revenues in the US and new products. “There is nothing to suggest that . . . it’s a no-brainer to go to the US.”

He acknowledged that London’s capital markets were struggling to attract and retain listings but cited the advantages to investors of staying in the UK. Among those that have moved their primary listings to the US are building materials group CRH, packaging company Smurfit Kappa and gambling group Flutter.

“If you have a shareholding of a UK [listed company] and you are located outside, you don’t pay withholding tax on your dividends, which is different from the US,” Marroco said.

“Hopefully we can see that in 10 years’ time, we don’t have this type of discussion,” he said. “Today there’s a lot of emotion that relates to it because of the frustration of some that are leaving.”

Much of the draw for investors in tobacco stocks is the capital returns from dividends and share buybacks. BAT’s biggest active investor is Spring Mountain Investments, the investment vehicle of Kenneth Dart, a Cayman Islands-based billionaire and heir to the world’s largest manufacturer of foam cups.

BAT announced this month it would use the proceeds of a £1.7bn sale of a small portion of its stake in Indian conglomerate ITC to restart its share buyback programme, beginning with £700mn of buybacks this year.

“What’s most important for me is that having restarted the buyback, this should be a consistent feature in terms of our capital allocation,” said Marroco.

BAT faces a challenge to reverse falling cigarette sales in the US, its biggest market. This has been driven by people switching to cheaper brands and cigarette alternatives, where the company has lagged behind PMI, which has had huge success with its blockbuster IQOS heated tobacco product.

BAT is targeting 50 per cent revenues from alternative products, such as its Vuse vapes and Glo heated tobacco devices, by 2035.

Marroco admitted that BAT was “late to the category” of heated tobacco products but said the company was well placed to catch up because of its market share in the US. “We have a massive business in the US that we can use to sell [new products].”

This article has been amended since publication because BHP made Sydney rather than New York its primary listing