Evaluating the financial case for investing in, or divesting from, tobacco investments.

Background: Tobacco Free Portfolios urges institutions to pledge against investing in, and to withhold financial services from, tobacco companies. Their goal is to create a 'tobacco-free world'. They argue that without financial and investor support, these companies' operations will become less sustainable.

Objective: To assess the financial rationale for investing in, or divesting from, tobacco companies.

Methods: Using data sourced from Bloomberg from 2008 to 2023, we evaluate historical sales volumes, real revenue, real gross profit per cigarette, stock performance and price-to-earnings trends for nine leading listed global tobacco companies.

Results: Cigarette sales volumes have steadily declined from 2008 to 2023. Despite efforts to diversify towards novel products, revenues from these products remain small, and cigarettes remain the primary revenue source. Excluding inorganic growth, six of the nine companies experienced real revenue declines from 2008 to 2023. Since 2016, many companies experienced declines in real gross profit per cigarette, indicating that they find it increasingly difficult to offset reduced cigarette sales through net-of-tax price increases. Since 2016, all nine tobacco companies' stocks have substantially underperformed the market. This stands in contrast to the 2008-2016 period, during which all nine companies' stocks substantially outperformed the market.

Conclusions: Tobacco companies have experienced deteriorating financial performance since 2016, amidst ever-escalating regulation. It remains unclear whether the growth in novel products will be rapid enough to mitigate the decline in cigarette sales. This uncertainty poses heightened risks for investors, and there is a real possibility of continued poor stock performance.