Japan Tobacco ($$) 

The position of JT, the third-biggest producer by market capitalisation, is doubly curious. It is in a traditionally defensive sector and cannot be accused of plying big-ticket items to cash-strapped consumers. Japan, its biggest market, has one of the lowest unemployment rates and at $3 for a pack of 20 it hardly behoves salarymen to stub out their cigarettes. Yet there are good reasons to spurn the weed. The £7.5bn acquisition of the UK’s Gallaher in 2006 gave access to new markets but carries hefty goodwill amortisation; $910m-worth last year. This is partly why net income for the year to end-March almost halved, to $1.3bn. Assuming debt-burdened Japan gets round to hiking tobacco taxes at some point (not as of now on the agenda) that will further scythe the bottom line. Regulation burns another hole. New rules on vending machine sales helped drag sales volumes down nearly 5 per cent in Japan last year, while promotions aimed at countering that impact sliced 11 per cent off ebitda.

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