As reported by StreetWise Tech, British American Tobacco’s Interim Management Statement for the nine months ended Sept. 30 shows that the group’s Global Drive Brands continue to perform well and that the firm’s newly launched eCig brand, Vype, is off to an encouraging start. We continue to believe that the firm’s wide economic moat is bolstered by its popular brands, global reach, and addictive product line.

Year-to-date, at constant exchange rates, revenue grew 3.5% as pricing more than offset volume declines in many of three of the company’s four segments. While overall cigarette volumes fell 3.2%, the Global Drive Brands’ volumes increased 1.9%. As cigarettes continue to become more expensive more smokers are switching to fine cut tobacco. BATS’ fine cut tobacco grew 3.3% in Europe during the period. We continue to believe that longer term the company’s top line will grow roughly 4% per year and that EPS will climb roughly 6% per annum.

The European eCig market continues to get more crowded. During the quarter, the company launched its new Vype eCig brand, Lorillard acquired SKYCIG (a U.K.-based eCig company), and Imperial Tobacco acquired the eCig intellectual property rights of Dragonite. While details surrounding the Vype launch were not released, we note that the product’s branding promotes the fact that Vype, “Looks real, feels real, and tastes real.” Vapers can purchase a disposable Vype (~130 puffs) for GBP 5 to GBP 6, or a rechargeable kit for GBP 15 and cartridge (~250 puffs) for GBP 3 to GBP 4.

While we continue to believe that eCigs will be a fast growing market, we worry that it will prove to be more competitive than traditional tobacco and that profit margins may not be as high. For now, Vype does not play a material role in our valuation of British American Tobacco.