MO - Altria Corp

[Gamecock-YT]

What would be the major hangup with treating this and PM as some kind of bond-like instrument? Regulatory risk? Getting the hammer thrown at them for JUUL? I mean Altria had an utter buffoon running this thing and they still just ramped up the dividend again. They got a COVID demand increase too. ESG funds and the like won't touch this thing with a ten foot poll which will keep it down in price but they're just going to keep pumping the dividend. Can the yield get above 10? It's 8.3% now. In a yield starved world that sounds insane.

 

 

more world exposure without the Juul non-sense you go for PM and it's 6% yield and IQOS.

 

 

What's a high yield savings account getting you? 1%?

 

 

 

 

What am I missing?

[DooDiligence]

What would be the major hangup with treating this and PM as some kind of bond-like instrument? Regulatory risk? Getting the hammer thrown at them for JUUL? I mean Altria had an utter buffoon running this thing and they still just ramped up the dividend again. They got a COVID demand increase too. ESG funds and the like won't touch this thing with a ten foot poll which will keep it down in price but they're just going to keep pumping the dividend. Can the yield get above 10? It's 8.3% now. In a yield starved world that sounds insane.

 

 

more world exposure without the Juul non-sense you go for PM and it's 6% yield and IQOS.

 

 

What's a high yield savings account getting you? 1%?

 

 

 

 

What am I missing?

 

More litigation & regulatory risk + a dying customer base are the only things I can think of.

 

FCF is amazing again, now that we're missing Willard.

 

They've separated the roles of CEO & Chairman. Hopefully an indication that no more raw deals will get rubber stamped.

[rb]

Most of the smokers are pretty much insane value over here. MO looks pretty good, PM a bit less so, BATS is totally nuts. It's probably an institutional thing. Tobacco has traditionally been shunned for a long time. I also imagine that having tobacco during a respiratory pandemic on your sheet doesn't look good. At the very least it will get you some weird looks at a party but may have some career consequences as well. Oh and tobacco doesn't enter the minds of the dwellers of the Sherwood Forrest. They're too busy with companies that don't make money.

 

So enjoy...

[Spekulatius]

Most of the smokers are pretty much insane value over here. MO looks pretty good, PM a bit less so, BATS is totally nuts. It's probably an institutional thing. Tobacco has traditionally been shunned for a long time. I also imagine that having tobacco during a respiratory pandemic on your sheet doesn't look good. At the very least it will get you some weird looks at a party but may have some career consequences as well. Oh and tobacco doesn't enter the minds of the dwellers of the Sherwood Forrest. They're too busy with companies that don't make money.

 

So enjoy...

 

I agree the smokers looked pretty good here. BTI would be my favorite here. I owned it before many moons ago and did fairly well. I probably should just buy some here, it goes well with my Defense and booze stocks.

[Gamecock-YT]

Most of the smokers are pretty much insane value over here. MO looks pretty good, PM a bit less so, BATS is totally nuts. It's probably an institutional thing. Tobacco has traditionally been shunned for a long time. I also imagine that having tobacco during a respiratory pandemic on your sheet doesn't look good. At the very least it will get you some weird looks at a party but may have some career consequences as well. Oh and tobacco doesn't enter the minds of the dwellers of the Sherwood Forrest. They're too busy with companies that don't make money.

 

So enjoy...

 

Why is BATS ROIC and ROE so bad vs. the other two?

[rb]

I can't give you a very informed answer right now because I've opened a bottle of cotes du rhone. But I think it has to do with acquisition accounting rules of IFRS vs US GAAP. BATS bought the part od RJR a few years ago (at what was a fairly generous price). But they're doing about 9 billion sterling CFO against a 60 billion sterling market cap. Yeah, they're getting a helping hand from sterling weakness but that's not bad at all overall.

[DooDiligence]

Cronos grows their losses nearly 10 fold after the investment by Altria. Their management also seems modeled after Willard as far as acquisitions go. Seems like they've been smoking a lot of their own product.

 

"Cronos reported a $40-million impairment charge related to a cannabidiol deal with CBD brand Lord Jones."

 

https://ir.thecronosgroup.com/static-files/66a4fb22-00ca-44b4-8691-8da024ea796a

 

---

 

Altria

Q2 2020 Earnings Call

Jul 28, 2020, 9:00 a.m. ET

 

Sal Mancuso on Cronos:

 

Turning to cannabis. In the second quarter, we recorded an adjusted loss of $17 million related to our Cronos investment, which primarily represents our share of Cronos' adjusted first-quarter 2020 results. Cronos is executing its strategy of developing disruptive intellectual property and building iconic brands. We believe Cronos is making progress in executing its asset-light strategy.

 

LOL

 

---

 

TBF, these guys survived massive litigation before & continued to produce tons of FCF so there's probably room for them to shoot themselves in the other foot & still be able to walk around

[DooDiligence]

Willards legacy...

 

>:(

 

www.reuters.com/article/us-juul-layoffs/juul-to-drastically-cut-workforce-explore-exiting-some-markets-idUSKBN25U36A

[Gamecock-YT]

Willards legacy...

 

>:(

 

www.reuters.com/article/us-juul-layoffs/juul-to-drastically-cut-workforce-explore-exiting-some-markets-idUSKBN25U36A

 

Are we seeing IQOS become the tech of choice before our eyes?

[Mephistopheles]

Picked up a bunch of shares this week. 9% dividend yield and gobs of FCF.

[Foreign Tuffett]

Picked up a bunch of shares this week. 9% dividend yield and gobs of FCF.

 

I have 'thrown shade' at this idea since the first page of this thread, but the risk-reward seems to have shifted somewhat:

 

(a) FDA seems quite serious about regulating 'mom and pop' vaping companies

 

https://cei.org/blog/fda-rules-e-cigarette-makers-go-effect-today-detriment-public-health

 

 

(b) US cig volumes this year have been much stronger than the disaster that was 2019

 

 

© stock price is much lower

[kab60]

Fine set of results, despite a global respiratory pandemic people are still smoking and volumes now only expected to be flat to down 1,5 pct. for the year.

[DooDiligence]

Chief Financial Officer Billy Gifford said they're happy with the investment in Canadian cannabis company Cronos Group Inc.

 

https://www.marketwatch.com/story/altria-cfo-says-canadian-cannabis-company-cronos-on-track-with-deal-that-gives-it-foothold-in-us-cbd-market-2019-10-31

 

This is the attitude towards Cronos following a mirror image cash incineration.

Has anything really changed at Altria?

 

https://www.fool.com/investing/2020/08/15/3-scary-numbers-from-cronos-second-quarter-results/

 

Imagine how well things are going at Juul.

 

I'm holding because I'm an idiot who's riddled with cognitive biases...

[kab60]

What a dumb statement. Luckily it is a business even an idiot can run. With their commitment to paying out 80 pct of earnings, and Juul and Chronos impaired, hopefully there will be less dumb moves and one should have earned his cost in ten years in dividends. All they should really focus on getting traction with IQOS.

[DooDiligence]

What a dumb statement. Luckily it is a business even an idiot can run. With their commitment to paying out 80 pct of earnings, and Juul and Chronos impaired, hopefully there will be less dumb moves and one should have earned his cost in ten years in dividends. All they should really focus on getting traction with IQOS.

 

Those were my thoughts, including the part about idiots running a dead simple business.

 

I still have faith that these guys will do something really stupid again soon and that their massive cash flow will make it easy to sweep hubris under the carpet.

 

Management at Altria is there for a paycheck & could care less about actually improving the business transforming the business into something more sustainable.

[kab60]

What a dumb statement. Luckily it is a business even an idiot can run. With their commitment to paying out 80 pct of earnings, and Juul and Chronos impaired, hopefully there will be less dumb moves and one should have earned his cost in ten years in dividends. All they should really focus on getting traction with IQOS.

 

Those were my thoughts, including the part about idiots running a dead simple business.

 

I still have faith that these guys will do something really stupid again soon and that their massive cash flow will make it easy to sweep hubris under the carpet.

 

Management at Altria is there for a paycheck & could care less about actually improving the business transforming the business into something more sustainable.

Yeah, reading the transcript it's apparent they're pretty dumb. But they also know the dividend is sacred, they don't really like leverage, so I think of my potential return as divy plus divy growth and then hopefully a kicker down the line from IQOS or multiple re-rating. Since they're committed to paying out 80 pct of earnings and they already took on leverage to buy Juul there shouldn't be much more than 20 pct of income at capital allocation risk. Now the expected return isn't crazy, but I think the risk-reward (crazy good). Espescially considering how frothy others parts of the market is, the general backdrop etc. Now a tax hike and excercise taxes going up would obviously suck, but hopefully not too much.

[rb]

At this point it really makes sense to do a debt financed buyback to take out 10% of the shares or so. In 10 years you basically pay back the debt with the dividend savings.

[kab60]

At this point it really makes sense to do a debt financed buyback to take out 10% of the shares or so. In 10 years you basically pay back the debt with the dividend savings.

Yep, but that is not gonna happen I'm afraid. They seem completely clueless. It's quiet incredible to think what some basic financial engineering would do here. They borrow at a couple of pct points, it is a no brainer, but they have no brains it seems. Perhaps when lockup of ABI shares lapse next year.

[rb]

At this point it really makes sense to do a debt financed buyback to take out 10% of the shares or so. In 10 years you basically pay back the debt with the dividend savings.

Yep, but that is not gonna happen I'm afraid. They seem completely clueless. It's quiet incredible to think what some basic financial engineering would do here. They borrow at a couple of pct points, it is a no brainer, but they have no brains it seems. Perhaps when lockup of ABI shares lapse next year.

I know. And you're right. One can dream though right?

[kab60]

At this point it really makes sense to do a debt financed buyback to take out 10% of the shares or so. In 10 years you basically pay back the debt with the dividend savings.

Yep, but that is not gonna happen I'm afraid. They seem completely clueless. It's quiet incredible to think what some basic financial engineering would do here. They borrow at a couple of pct points, it is a no brainer, but they have no brains it seems. Perhaps when lockup of ABI shares lapse next year.

I know. And you're right. One can dream though right?

We need a tobacco activist. Someone who'll smoke management out and shame them. But they're all too busy doing ESG investing and getting high on hydrogen.

[rb]

Tom Russo would be the obvious guy. Problem is he's too nice to be an activist.

 

I honestly don't know what happened. Smart financial management/engineering used to be these tobacco guys' thing. Now you have these idiots at Altria. At BATS the motto should be "We Incinerate Value, not Just Tobacco" and the Imperial guys are too dumb to even mention.

[Spekulatius]

At this point it really makes sense to do a debt financed buyback to take out 10% of the shares or so. In 10 years you basically pay back the debt with the dividend savings.

Yep, but that is not gonna happen I'm afraid. They seem completely clueless. It's quiet incredible to think what some basic financial engineering would do here. They borrow at a couple of pct points, it is a no brainer, but they have no brains it seems. Perhaps when lockup of ABI shares lapse next year.

 

Couldn’t they just swap ABI shares for MO shares, either directly or in a roundabout way? I went through the last CC and what I found interesting is the home delivery of IQOS devices. They have an age verification system, so I think this is quite a chance to go directly to the consumer and grab more value.

 

I just bought a few shares as well, so I am interested on how this turns out.

[changegonnacome]

Bold prediction as a newly minted shareholder of MO.........

 

The first untarnished 'pandemic in the rearview mirror' year smoking volumes will rise for the first time in years. I think a certain Joie de vivre will take hold and slightly reckless but pleasing habits will be embraced in a "you only live once" attitude that strikes the population - a kind of roaring twenties..................there was some talk of this in Sam Harris's recent podcast. Worth a listen. Everyone I speak to is talking about how once they're 'free' they're gonna do X,Y,Z

 

2021 - will be the year of COVID fightback....2022 > Post COVID recovery period >2023 - MO's Volumes will grow over 2022!

 

See you all in 2023  ;)

[ukvalueinvestment]

At this point it really makes sense to do a debt financed buyback to take out 10% of the shares or so. In 10 years you basically pay back the debt with the dividend savings.

Yep, but that is not gonna happen I'm afraid. They seem completely clueless. It's quiet incredible to think what some basic financial engineering would do here. They borrow at a couple of pct points, it is a no brainer, but they have no brains it seems. Perhaps when lockup of ABI shares lapse next year.

 

Hard to borrow when you are already indebted and your business (as measured by volumes) is deteriorating. 

[kab60]

Yeah I don't know about that, I'd think if anything covid19 has boosted smoking already but if people go YOLO and smoke like crazy next year so be it.

 

Either way I'm just amazed at the valuation of what is arguably one of the best businesses in the world. Close to double digit yield, improving margins and close to double digit growth in a business that doesn't need capital to grow. I don't recall seeing many business raising their dividend this yeah.

 

Sure, their customers die, but what's the average length of a medium sized business anyway that then churns their software? They have software-like margins without the massive dilution and they smash the rule of 40. Recurring revenue and all that. They should start reporting retention rates and rebrand their offering as Smoke as a Service.

 

From latest Q on results in smokeable products;

 

Adjusted OCI increased 9.9%, primarily driven by higher pricing and lower costs, partially offset by higher promotional investments and higher resolution expenses. Adjusted OCI margins increased 2.2 percentage points to 57.5%.