British American Tobacco appoints new chief executive as as analysts predict something’s ‘not right’ at BAT
British American Tobacco appointed finance director Tadeu Marroco as CEO on Monday, succeeding Jack Bowles who is stepping down after about four years.
Marroco started working for the tobacco firm in Brazil in 1992 and was appointed to the board in 2019.
Bowles, who also joined the board in 2019, has led the maker of Lucky Strike and Dunhill cigarettes through a transformation to focus growth on new categories such as vape and e-cigarettes.
“Having been at the centre of the formulation of this strategy, I am convinced that this is the right strategic path for BAT,” Marroco said in a statement.
The Brazilian, who has a degree in electrical engineering from the Universidade Federal do Rio de Janeiro, joined BAT’s management board in 2014 as its business development director.
Prior to leading the company’s transformation charge, Marroco – a keen follower of London’s Arsenal football team and Formula One motor racing – headed its key Europe and North Africa regions.
BAT shares have risen about eight per cent since the start of 2019, but underperformed a 15 per cent rise in the FTSE 100 over the same period.
“We believe Tadeu Marroco is a worthy successor.. and we would not expect a broader shift in strategy as a result,” JP Morgan analysts said.
Director Javed Iqbal will be interim finance director while the group looks for a permanent replacement for Marroco, the company said.
The news comes weeks after BAT agreed to pay more than $635 million to U.S. authorities after a subsidiary pleaded guilty to charges that it conspired to violate U.S. sanctions by selling tobacco products to North Korea and commit bank fraud.
RBC analysts said the change of CEO was “unexpected”, making them “wonder if BAT’s performance might be faltering in a way that is not immediately apparent”.
‘Something is not right’
Meanwhile, Russ Mould, investment director at AJ Bell, said “It’s never a good look when a company says its chief executive is leaving with immediate effect, and after only four years in the job. This suggests something is not right in the business.”
“The fact British American Tobacco has promoted its finance director to the CEO role provides some comfort that the new leader already knows the business inside out. However, it raises a lot of questions as to why the change has happened.
“Unlike many companies in this situation, we haven’t had any major clues for problems behind closed doors for British American Tobacco. There have been no profit warnings or activist investors calling for change. The only high-profile calls from shareholders have been a request by GQG Partners to move its stock listing from London to the US in the hope of getting a higher valuation.
“Like many of its peers, British American Tobacco has been shifting its business model from traditional cigarettes to alternatives such as vaping as consumer preferences change. Many countries around the world are paying closer attention to health and the environment, meaning tobacco manufacturers need to show they are doing more to evolve.
“A lot of investors have turned their back on the sector due to ESG concerns, which explains why shares in stocks like British American Tobacco are relatively cheap and offer high dividend yields. They’re deeply unloved.
“While these businesses remain highly cash-generative, they are having to find new ways to attract investors and win over sceptics.
“Perhaps British American Tobacco’s board felt that the outgoing CEO Jack Bowles wasn’t doing enough to push the company’s transformation efforts. He is thanked for being the architect of a new strategy, but there is reference to needing someone new to take the business to the next level. Tobacco and vaping are highly competitive markets and it will require some bright thinking to stand out from the crowd.”
Reuters – Yadarisa Shabong, Richa Naidu