Given the concerns surrounding public finances, it would come as no surprise if Europeans are "sparking up" on a more regular basis. Tobacco remains a recession resilient product and despite a recent fall off in overall sales volumes, industry heavyweight British American Tobacco (LON:BATS) remains on course for another year of steady progression.

Whilst shares in BAT have been on a steady ascent over recent years, investor appetite for BAT has recently waned. Whilst the FTSE 100 has been on a white knuckle ride, BAT's underperformance vis-avis the index, at a time when risk aversion increased, will have left many scratching their heads.

One potential reason could be the decline in overall sales volumes. Whilst group revenue forged ahead during this year's opening quarter this was mainly due to the group's June 2009 acquisition of Bentoel in Indonesia as well as ongoing strong pricing momentum. With sales volumes falling from 170 million cigarettes to 168 million, top line growth materialised in spite of a 4% fall in organic volumes and 1% drop in overall sales volumes.

Rather than "recession proof" it must be noted that group's product is "recession resilient" and as such the prevailing economic mood will impact consumption levels.  BAT’s broad portfolio of products though has helped minimize any drag as operating across a wide pricing point range means that the group is not reliant on any single consumer type. Such diversification provides a safeguard for earnings and ensures that revenue streams remain solid as consumer trends shift. Having said that BAT has seen both its low price and premium segments dented by down-trading to illicit cigarettes and rising levels of unemployment as well as higher taxes.

Geographic diversity is also a major attribute for BAT however sales volumes have fallen in fact fallen all but one of the group’s five main regions.

Asia Pacific was the only region in the world where the group increased its sales volumes, with the group selling 45 billion cigarettes, a 5% increase on the corresponding period last year.  Whilst widespread falls in sales volumes would ordinarily be of concern, we remain comfortable given that such falls are part of global industry contraction. BAT has in fact managed to bolster its market share in many regions including Brazil and Romania whilst volumes have fallen. In other areas such Japan and Ukraine market shares have encouragingly been maintained and sales…

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