Spread Bet on Imperial Tobacco Group
Imperial Tobacco Group PLC (IMT) is an international tobacco company headquartered in the UK, in Bristol. It has a market cap of 23.8 billion and counts as the fourth largest cigarette company in the world – and is the world’s largest producer of cigars. It has 51 factories worldwide and produces more than 320 billion cigarettes per year. The multi-national company is particularly famous for its fine-cut tobacco, cigars and rolling papers. The company’s size ranks it as the 19th largest company on the London Stock Exchange. Imperial took over Spain’s Altadis in 2008 and has a portfolio of names at both the high and low price points across several tobacco categories with well known brands like Davido, Gauloises Blondes, West and JPS performing well. The company is currently also working on a mega £4.2 billion acquisition Reynolds American’s USA cigarette brands Winston, Maverick, Kool, Salem and e-cigarette label blu. The company’s dependence on the British and European markets is not proving helpful in these hard times but Imperial is strategically well placed to take advantage of consumers trading down to value cigarettes and fine-cut tobacco utilised in ‘roll-your-own’ cigarettes.
At this point, regular investors may start to wonder about “ethical investing”, given the suffering and disease that is attributed to tobacco use. Despite bad publicity for half a century or more, and despite the sector having a history to being hit by prohibitive legislation, tobacco companies seem to be thriving, partly by expanding into growing marketplaces as the old ones become more health conscious. However if you’re talking about spread betting, you are not committing your money to the growth of the company and indeed may see occasion to bet on the short side, against the company, and therefore the ethics of spread trading on this market sector may not figure in your selection. It is worth noting here the low price elasticity of demand for tobacco and while health issues and tax hikes do impact volumes, tobacco companies use their pricing power and costs savings to help compensate against volume declines.
The Imperial Tobacco Company came into being in 1901, combining many different British tobacco and cigarette companies including John Players, and WD and HO Wills. In fact one of the Wills family was the first Chairman. The amalgamation took place in part because of competition from the USA, but the next year the Imperial Tobacco Company and the American Tobacco Company came to an agreement on trading in each other’s territories, and formed the British-American Tobacco Company. Less than 10 years later the American side pulled out of the combined company, but Imperial Tobacco retained an interest in BAT until 1980.
Continued hikes in tobacco duties, advertising restrictions, and threats of plain packaging are the main risks facing tobacco heavyweight. A smoking ban in public places came into effect in the United Kingdom in 2007. This was followed by moves against vending machines in 2011 while displays in shops will also be curbed on a phased basis between 2012 and 2015. The latest troubles stem from new regulations introduced in Australia relating to the introduction of plain cigarette packaging; investors are particularly anxious that other countries like the UK and France may follow suit.
In the 80s and 90s Imperial Tobacco diversified, going into drugstores, food, hotels, and beer. This prepared the group for survival in the anti-tobacco climate. This and frequent acquisitions in the 21st-century mean that the shares have doubled in value in the last seven years. Imperial’s fine-cut and rolling paper brands including Golden Virgina, Drum and Riza are likely end beneficiaries of trends towards value throughout the European Union.
Imperial Tobacco Group Rolling Daily
The Imperial Tobacco Group, while founded mainly on tobacco and tobacco products, has ventured into several different areas and achieved good growth in the last few years. The current price for a daily rolling bet is 2494.5 – 2499.5, and this means that you could place a short or sell bet on the shares for, say, £2 per point at a price of 2494.5.
If you do this and the price falls to perhaps 2415.6 – 2420.6, you might decide to cash in and take your profit. Closing the bet at the buying price of 2420.6, you take this away from your entry price, coming out with a total of 73.9 points profit. Multiplying by your stake, you have won £147.80.
It does not always work out that way. Much of the time you will find that your bets turn out to be losers, and the way to profit is to keep each loss small in comparison to the size of the winnings. If the price went up, you might decide to close the bet when the quote was 2558.6 – 2563.6. In this case, the closing price is 2563.6. Taking one away from the other, 2563.6-2494.5 is 69.1 points, which would cost you £138.20.
It would have helped if you closed the losing bet earlier to keep your losses small, but sometimes it is hard to keep an eye on the market and do everything else you need to do. In such a case, it can be useful to set a stop loss order when you take out the original bet. This tells your spread betting company to close your losing bet when it reaches a certain level. Perhaps in this case it would have closed your bet for you when the price reached 2541.3 – 2546.3.
Your starting price was 2494.5, and the spread bet closed at 2546.3. The difference between these is 51.8 points. Multiplying this by your stake of £2 per point, you would have lost £103.60.
Imperial Tobacco Group Futures Style Bet
You may know that the rolling daily bet can incur some small charge each evening when the bet is rolled over. The alternative is to take out a futures style bet which is good until the date specified with no further accounting. The downside is that the spread is usually slightly larger, and you have to balance the advantages and disadvantages of each.
The current price for a futures style bet for the far quarter on Imperial Tobacco is 2508.9 – 2520.9. Taking the longer view, you might place a buy bet on this share for £3 per point in the belief that the shares will increase in value during the year.
Say first that you are correct and the price goes up to 2615.2 – 2623.8 in a few months, and you decide to close your spread trade and collect your profit. Your spread bet started out at 2520.9, and it closed at 2615.2. The difference between these is 94.3 points. When you multiply this by your stake, you find that you have won £282.90.
However, the price might have gone down and you could be left deciding to close your spread trade to avoid further loss. If the price went down to 2456.3 – 2468.2, you could have closed your bet at 2456.3, giving you a loss of 64.6 points. When you work that out, you would have lost a total of £193.80.
What many spread traders do is set a stoploss order with their spread betting company when they open the spread trade. This requires the company to close your losing trade when it reaches a level you specify. In this case, it might have closed the losing spread bet earlier, when the price was 2472.1 – 2483.6.
To work out how much you have lost now, you take 2472.1 away from 2520.9 to get 48.8 points. Multiplying this by £3 per point, you find that you have lost £146.40.
Meanwhile, spread traders looking to play overseas brands might do well to check out Philip Morris International (PM), the company behind the famous Marlboro brand and Reynolds American (RAI) as well as Lorillard (LO); the last two being respectively the second and third largest USA tobacco companies.
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