FTSE 100 slips back with inflation in focus, British American Tobacco stubbed out on cloudy outlook

“The FTSE 100 started Wednesday modestly on the back foot after UK inflation figures from which it was difficult to take anything tangible,” says AJ Bell Investment Director Russ Mould.

“With consumption artificially depressed by lockdown there’s not a lot for the data crunchers to work with, though there are some signs that the widely anticipated increase in prices is starting to come through.

“And a surge in US Treasury yields overnight shows inflation is dominating investors’ thoughts as they look for a higher rate for holding ‘safe’ assets like government bonds.

“Another day, another record dividend from the mining sector as Rio Tinto ups its payout. This old world industry is becoming fashionable again given the contribution it is likely to make to producing the metals and minerals required for a new world of renewables and electric vehicles.”

British American Tobacco

“Despite beating expectations with its full year numbers British American Tobacco has seen any positive response to this news go up in smoke.

“Cost cutting was a big contributor to the better-than-expected performance and investors may be concerned about the sustainability of future growth given Covid-19 has served a further reminder of the health risks of smoking.

“The habit has, unsurprisingly, been flagged by the World Health Organisation as making it harder to fight the disease and the company itself acknowledges an ongoing Covid impact in 2021 with revenue growth lacking much puff.

“Like its rivals British American is investing in so-called new categories, essentially vaping, but traditional products still make up more than 90% of sales despite material growth in this area through the course of the year.

“British American Tobacco in many ways faces a similar challenge to the oil and gas sector, replacing a revenue stream which is widely perceived as harmful with one which is as yet much less profitable and where its ability to dominate the market is less certain.

“The growth in ethical investing is arguably even more of a problem for the likes of British American than the oil industry because, while fossil fuels perform a useful function alongside their less beneficial polluting qualities, it’s hard to make a case for cigarettes having any sort of positive impact alongside the harm they cause to people’s health.

“And no amount of marketing spiel around ‘A Better Tomorrow’ can alter that fact.”

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