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MO - Altria Corp

DooDiligence

By DooDiligence
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kab60 Newbie

kab60

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Agree the decline rates are something to watch, and why it trades where it does, but not long ago one could buy MO and probably recoup the whole investment through dividends in 10 years time.

 

I still think there's decent room to increase prices in the US. Cigarettes are still pretty cheap compared to most places. And correct me if I'm wrong, but a large part of the cost is fixed taxes/duties. Thus, if say the total cost to consumers is 50 pct. towards MO and 50 pct. towards the taxman, a 6 pct. price hike is only felt as 3 pct. towards the consumer. In real terms it's even less.

 

Not trying to downplay the decline, but it even has an inbuilt hedge; if the investment goes bad, at least less people are gonna die by their products.

 

There's also optionalty in iQos.

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rb Newbie

rb

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Yes I've seen markets where IQOS does quite well. But PM and BATS are pushing hard their vaping products. But then where I've seen IQOS do well they have managed to convince the regulators to let people use IQOS inside. I don't know how much that figures into the popularity of the product but they use it a lot in marketing so it probably figures quite a bit. I just don't think they'll be able to pull off the same thing in the US.

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mcliu Newbie

mcliu

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Altria volume declines:

 

2009 148.7 0

2010 140.8 -5.31%

2011 135.1 -4.05%

2012 134.9 -0.15%

2013 129.3 -4.15%

2014 125.4 -3.02%

2015 126.0 0.48%

2016 122.9 -2.46%

2017 116.6 -5.13%

2018 109.8 -5.83%

2019 101.8 -7.29%

 

PM volume declines:

 

2009 864.0 0

2010 899.9 4.16%

2011 915.3 1.71%

2012 927.0 1.28%

2013 880.2 -5.05%

2014 855.9 -2.76%

2015 847.2 -1.02%

2016 812.9 -4.05%

2017 761.9 -6.27%

2018 740.3 -2.84%

2019 - -

 

PM decline isn't that bad when you add in IQOS volumes:

 

2015 0.4

2016 7.4

2017 36.2

2018 41.4

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Gamecock-YT Newbie

Gamecock-YT

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talk about not getting the incentives right....

 

 

 

Teens Find a Big Loophole in the New Flavored Vaping Ban

 

https://www.nytimes.com/2020/01/31/health/vaping-flavors-disposable.html

 

..

 

Blame a policy loophole. When the Trump administration decided to prohibit fruit, mint and dessert flavors in refillable cartridge-based e-cigarettes like Juul, it carved out a few exceptions to mollify the vape shop owners and adult consumers who complained. The much-publicized exemption allows menthol and tobacco flavors.

 

But a footnote on page 9 of the new policy permits all flavors to continue to be sold in devices that cannot be refilled and are designed to be disposed of after the flavored nicotine has run dry.

 

Teenagers have caught on fast.

 

 

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LC Newbie

LC

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My holdings are split about 50/50 between MO & PM, and I will probably shift more towards PM over the next 2-3 years if/when pricing opportunities present themselves.

 

After a good top line quarter from PM announced today, I should have accelerated my timeline.

 

Personally I still think the quoted advice is the best move here.

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manuelbean Newbie

manuelbean

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For those of you in the US who haven't yet come across an iQos smoker, I can tell you that here in Portugal the iQos is the "new thing". I don't have the data to back this up but I would say that the % of smokers who start smoking iQos and never go back to regular cigs is north of 90%. I myself was a Marlboro smoker and then an iQos smoker. PMI designed it to be like "an iPhone". A piece of tech that you want to own. The traditional device is a two-piece device. The charger (bulky device) and the "pen" where you insert the "heets" (small cigarettes). Recently PMI upgraded every smoker's device in the country (it was like a recall). I'm not sure why they did this and I even wrote an email to the company but they haven't replied yet. 

After years of thinking about quitting, I quit smoking after switching to iQos, so it might be fair to say that it's easier to quit while smoking iQos, but I'm not completely sure of this (something to watch out for).

To make a long story short, iQos is very very sticky because it a) still allows you to smoke "cigarettes" and b) it's a slick electronic device. Expect to see it all around in the US.

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rb Newbie

rb

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Yea, but this thing is mighty cheap over here.

 

I can't really figure out the selloff. Are portfolio managers afraid for a cigarette company to show up in their holdings during the pandemic of a respiratory disease?

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LC Newbie

LC

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Yea, but this thing is mighty cheap over here.

 

I can't really figure out the selloff. Are portfolio managers afraid for a cigarette company to show up in their holdings during the pandemic of a respiratory disease?

I don't think its optics. A respiratory disease probably won't slow the rate of volume declines. Plus the general market selloff. I moved all MO to PM as international volume declines are not-so-steep. But, that may change as well given Europe's experience with COVID

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rb Newbie

rb

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I don't think it'll speed it up either. But it will kill a negligible number of its customers.

 

I do like PM better than MO as a business. But at this point I've been buying MO, despite the fact that as it's been pointed out Willard is an idiot. It's simply a much better valuation and the balance sheet is in better shape.

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Castanza Newbie

Castanza

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Well, I'm glad I never beat up my lungs from smoking or vaping.  This virus may permanently impair it's customer base (as in, a disproportionately higher death rate amongst smokers/vapers).  Not that I can measure by how much.

 

For sure. If this virus does end up killing a lot of individuals who smoke, you can be sure no politician is going to leave those points on the table. You'll see a crackdown or outright attempt to ban smoking. 

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manuelbean Newbie

manuelbean

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Hi guys, I wonder if anyone can help me assessing the safety of this investment.

 

 

Are you guys worried about the fixed charges coverage? I see roughly: Interest=$1.3B, Maturities and other contr. obligations= $4B, Dividend=$6.4B. Total:  $11,7B

 

As sources of liquidity, I see unlevered CFO of around $8,2B (I'm saying there will be a decrease of 12% in shipments, like in 2009, and no price increase), Cash $2,1B, Revolving credit $3B. Total: $13.3B

 

 

 

Although the Interest coverage  is 7,4, this would translate to about a 1,1 All-in coverage. Although this is fine, and the company can probably defer some of those "other contractual obligations", it seems thin to me. I'm not even including the other current liabilities like settlement charges.

 

 

What do you guys think?

 

Thank you.

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kab60 Newbie

kab60

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I'm surprised this trades at a 9 pct yield. So I sold my own position doing March since it held up well compared to a lot of other stocks, but not we're in a Zirp world and uncertain macro backdrop and then you have this thing which throws off cash, about as resilent as they get, has pricing power and is asset light. Risk is acceleration in volume declines, but that was the same before covid19. Terminal value is debatle (I'm an optimist), but in tens year ones investment has been returned assuming just modest growth in dividends. I'm sure people smoke less in 10 years but I'm also sure prices are higher, so how do you lose here? New regulation, law suits - or possibly bad capital allocation. But since the dividend is sacrosant, hopefully they can't mess up too much and hopefully new guy isn't dumb as a rock/too bored so he feels he needs to act. Iqos free upside, potentially large. If one fears crazy inflation down the line, their asset light model and pricing power should make them do better than most I think?

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sleepydragon Newbie

sleepydragon

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I'm surprised this trades at a 9 pct yield. So I sold my own position doing March since it held up well compared to a lot of other stocks, but not we're in a Zirp world and uncertain macro backdrop and then you have this thing which throws off cash, about as resilent as they get, has pricing power and is asset light. Risk is acceleration in volume declines, but that was the same before covid19. Terminal value is debatle (I'm an optimist), but in tens year ones investment has been returned assuming just modest growth in dividends. I'm sure people smoke less in 10 years but I'm also sure prices are higher, so how do you lose here? New regulation, law suits - or possibly bad capital allocation. But since the dividend is sacrosant, hopefully they can't mess up too much and hopefully new guy isn't dumb as a rock/too bored so he feels he needs to act. Iqos free upside, potentially large. If one fears crazy inflation down the line, their asset light model and pricing power should make them do better than most I think?

 

The problem is they have no where reinvest their earnings and they pay a lot of dividends instead of aggressive buying back. And when they reinvested, and taking on more debt to do so, they made very poor decisions.

 

I might need to cut loss on this stupid company.

 

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JRM Newbie

JRM

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They definitely overpaid for stakes in Juul and Cronos.  The stake in ABInbev is the most confusing to me.

 

The other way to look at the situation is the previous CEO is gone.  The current plan is to pay dividends and reduce debt.  Juul and Cronos are like free options at this point.  They also have distribution rights to iQos in addition to a portfolio of other smokeless tobacco products. 

 

We've heard a lot less about people dying from a mysterious vaping lung disease.  I wonder why?

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