Tobacco companies - out of puff Gauloises have their helmets and Gitanes their dancers. But the two French cigarette brands may soon be shorn of their packaging adornments. Rumours in France suggest that the government could force tobacco companies to strip branding from their products; it could also increase taxes. It is hardly surprising that shares in Imperial Tobacco, which owns both brands, are down 10 per cent in the past month. France is not the only cause of the tobacco stock sell-off, and Imperial is not the only victim. The sector has fallen sharply of late as talk in France has been joined by proposals in Russia to ban smoking in public places and a more general rotation out of defensive stocks. Japan Tobacco (which generates a fifth of its revenues in Russia, according to Investec) is down 14 per cent since mid-August, British American Tobacco is off 7 per cent, and Philip Morris International 5 per cent. Imperial has not been helped by its heavy exposure to Europe's unhelpful combination of wary consumers and enthusiastic regulators. Four-fifths of its sales come from the region, while its revenue growth and returns on capital lag those of BAT and Philip Morris. And although Imperial has long been seen as a takeover target, competition concerns would make a deal tricky. All of which leads to a justified share price discount to rivals. Imperial's enterprise value is nine times its earnings before interest, tax, depreciation and amortisation, against 11 for BAT and Philip Morris, which generate over half of their sales in emerging markets. The possibility of legislation in Russia suggests that emerging markets will not be immune from tighter regulation. For now, that threat should be offset by market growth. The same cannot be said for developed markets. That makes BAT and Philip Morris the more attractive options, despite the higher valuation.