Proactive Investors - Prominent British vape wholesaler Supreme PLC (LON:SUP) has welcomed the “clarity” provided by Prime Minister Rishi Sunak’s sweeping disposable vape ban announcement in a hastily published trading update.
AIM-listed Supreme noted that its suite of rechargeable pod systems is “fully compliant” with the initiative, which is aimed at eliminating underage vaping and environmental issues associated with disposable vapes.
Supreme is currently the principal supplier to the UK government’s ‘swap to stop’ scheme.
However, a third of Supreme’s revenues for the year ahead are projected to come from disposable vape devices, leading to questions over the group’s revenue mix in the proceeding years.
While Supreme expects a temporary bump in revenues in 2025 as retailers seek to replace banned inventory with new pod-system vaping devices and refillable vape kits, the group predicts that only half of disposable vape activity will permanently transition to these alternatives.
On a longer-term basis, Supreme said it will continue to evaluate the “ongoing impact of new regulations within the UK e-cigarette market as more clarity, particularly in respect of timing, is published”.
Incoming laws will also target flavoured vapes and colourful packaging which the government claims are appealing to children.
According to Supreme, the company has “already implemented a number of proactive measures, including narrowing and re-naming of flavours and tailoring packaging”.
Since the emergence of public and regulatory scrutiny over the vaping industry, Supreme has been at pains to promote the virtuous side of the devices as “an affordable, sustainable, safer alternative to smoking”.
In the company’s own words, Supreme “remains confident that vaping is, and will continue to be, the most credible and effective alternative to cigarettes”.
But the jury is still out on the health consequences of vaping and “the long-term impacts of vaping are unknown”, as Sunak commented on Monday.
Supreme’s house broker Shore Capital Markets touted the positive elements of Supreme’s trading update, particularly the strong 2024 trading outlook and £1 million share buyback proposal.
“Combined we see this as outstanding management, Supreme positioning itself well, ahead of government action on vaping, whilst working to broaden its assortment and profit stream and displaying good discipline around capital allocation,” said ShoreCap.
Equities analysts wrote: “Looked at Supreme’s thesis through this lens, we believe that the equity investment community would do well to reflect upon the more virtuous components of Supreme’s assortment and policies noting too a wider assortment of non-vaping products where we expect organic and inorganic growth in future years.”
Though Supreme shares initially fell 10% to 93p when Sunak unveiled his anti-vape ambitions, they have since recovered to 116.8p.