MO - Altria Corp

[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.

 

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

Volumens have been deteriorating for 40 years. They're about flat this year. Look up their debt and credit rating - it's hardly difficult for them to borrow. They have debt maturing in 2059 which currently trades at a 4,3 yield...

[DooDiligence]

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.

Volumens have been deteriorating for 40 years. They're about flat this year. Look up their debt and credit rating - it's hardly difficult for them to borrow. They have debt maturing in 2059 which currently trades at a 4,3 yield...

 

and piss poor management can't kill the cash flow.

I still wish I'd never bought.

 

It's like being in business with a retarded sociopathic mob boss.

[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.

 

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

Volumens have been deteriorating for 40 years. They're about flat this year. Look up their debt and credit rating - it's hardly difficult for them to borrow. They have debt maturing in 2059 which currently trades at a 4,3 yield...

 

and piss poor management can't kill the cash flow.

I still wish I'd never bought.

 

It's like being in business with a retarded sociopathic mob boss.

Yeah, management sucks but they probably tapped out their acquisition pipeline, and CEO reckoned they were bad buys. Now that hardly takes a genius to figure, just a stock chart. But it might be a blessing for new guy to start with such a low stock price. He only has to not do dumb stuff to look great. If IQOS ever gains traction, the narrative might turn. Meanwhile, we get paid to wait. I took it to 15 pct of portfolio the other day. Risk is pretty obvious, but FDA slamming down on vaping arguably reduces risk of accelerating volume declines while price is lower. Like the risk/reward, but don't expect anything explosive with ESG investors etc heading for the exits.

[Mephistopheles]

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%.

 

I almost spit my beer out reading that lol

[rb]

Anybody knows what the idiots do today to cause a 2% decline in a strong and broadly upward day?

[John Hjorth]

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%.

 

I almost spit my beer out reading that lol

 

A bit funny, yes, but please be aware of the precious drops.

 

Anybody knows what the idiots do today to cause a 2% decline in a strong and broadly upward day?

 

rb,

 

I suppose they're selling.

[manuelbean]

What would happen if Altria were to cut its dividend to buyback shares?

[kab60]

That is never going to happen. They raised it 40 years in a row and will be crucified if they even consider not paying out most of their earnings.

[Munger_Disciple]

Plus management credibility = 0 after the Juul & Cronos fiascos. They could have easily bought back $15B in shares instead of lighting the $$$ in smoke.... cough...cough... :o

[DooDiligence]

What would happen if Altria were to cut its dividend to buyback shares?

 

I'd be OK with forgoing the dividend for buybacks but seeing as how these guys are self serving idiots, and roughly 1/3 of compensation is in equity awards, that's not gonna happen.

 

On another note, I was just browsing the last proxy statement & found this nugget among Gifford's 2019 achievements.

 

"Led the issuance of debt to fund the Cronos and JUUL investments at better than expected interest rates"

 

LOLZERS

[rb]

What would happen if Altria were to cut its dividend to buyback shares?

See my post from last week. The way things are now they don't need to cut the dividend to buy back shares. They could issue a 10 year bond, buy back shares and then pay back the bond with the dividend savings. I fear that this is too evolved a strategy for Altria's CFO.

[Foreign Tuffett]

Price action today strikes me as odd given that, in my estimation at least, MO has been a net beneficiary of the current pandemic. I look at their most recent estimate for Y/Y industry cig volume and cannot help but think that a great deal of enhanced unemployment and stimulus check money was spent on cigs.

[kab60]

Price action was a lille weird, but perhaps BUD plays a little part - that has performed well recently. And that stake, which can be sold in a year, is now worth 13b on a 73b marketcap.

[Foreign Tuffett]

Price action was a lille weird, but perhaps BUD plays a little part - that has performed well recently. And that stake, which can be sold in a year, is now worth 13b on a 73b marketcap.

 

That's a good point, you are probably right.

[mattee2264]

 

Other tobacco stocks such as Philip Morris and British American Tobacco are also up 10% or so over the last week or so. So not sure it is specific to Altria's BUD stake.

 

Not really sure what the election had to do with it. Perhaps the thinking was a divided government reduced the risk of increased regulations. As for the vaccine I guess long term it is a positive as smokers are a higher risk group and if the virus was going to be around for years probably some of them would have got round to quitting.

 

 

[kab60]

 

Other tobacco stocks such as Philip Morris and British American Tobacco are also up 10% or so over the last week or so. So not sure it is specific to Altria's BUD stake.

 

Not really sure what the election had to do with it. Perhaps the thinking was a divided government reduced the risk of increased regulations. As for the vaccine I guess long term it is a positive as smokers are a higher risk group and if the virus was going to be around for years probably some of them would have got round to quitting.

I agree it's probably a combination and it's not like the moves have been spectacular - especially considering where it trades.

 

But I think it's worthwhile to point out that the BUD stake is now worth almost 18 pct. af Altria. And as I've written in the BUD thread before, I think BUD itself looks undervalued (less so after the recent move). I think when BUD has delevered and reintroduced a significant dividend that the stock will rerate, so I'd hope for Altria management to have a lil' patience before divesting. If they sell, I'd want them to do a tender offer if prices makes sense, but management isn't very impressive, so they'd probably pay off 1 pct. debt instead (which would send them up for another awful acquisition down the line...). In that case, I'd prefer that they keep the stake and passes the BUD divys on to Altria shareholders.

[winjitsu]

Not much to add to this conversation other than will be ripping a large >15% position in this too. Traded in and out in 2018, but this time around, with a more-or-less fully written down JUUL, I think the hurdle is really low for a recession (and interest rate proof) business to watch the stock re-rate to a historical ~4.5% dividend yield (around $77 by my calculations).

 

The risks I see:

[*]Regulatory: I think split congress and the recent backlash on tech takes off some of the regulatory pressure 

[*]Management: CEO and management direction is the biggest risk, but I think there's a different between Williard, who started in BD/Strategy, compared to Gifford who is a career accountant / finance guy. My experience with BD/Corp Dev types is they want to do big deals because it's good for their resume, regardless of the outcome -- obviously see that with JUUL / Cronos. Pure finance guys are cost cutters, would not be surprised to see some asset sales (winery, BUD) + buybacks

[*] Pot legalization:  I did a quick glance on some papers said pot smokers tend to be regular smokers as well.

 

[K2SO]

As far as the vaccine goes, it will be helpful to get people back in stores in order to try out iQOS. It's much harder to transition people over when they can't see it and hold it in person.

 

[winjitsu]

As far as the vaccine goes, it will be helpful to get people back in stores in order to try out iQOS. It's much harder to transition people over when they can't see it and hold it in person.

 

When I lived in Asia, had a few of my younger (early 20s) friends use iQOS, especially for girls that don't want the smell or bad breath transitioning from cigs. I haven't seen one used in Europe or the States.

 

My anecdotal evidence makes me believe the crowd will skew towards newer, younger users. I also have a hard time seeing this take off when there is already a vaping culture in the states from JUUL etc.

[DooDiligence]

As far as the vaccine goes, it will be helpful to get people back in stores in order to try out iQOS. It's much harder to transition people over when they can't see it and hold it in person.

 

When I lived in Asia, had a few of my younger (early 20s) friends use iQOS, especially for girls that don't want the smell or bad breath transitioning from cigs. I haven't seen one used in Europe or the States.

 

My anecdotal evidence makes me believe the crowd will skew towards newer, younger users. I also have a hard time seeing this take off when there is already a vaping culture in the states from JUUL etc.

 

The young adults I'm friends with don't care about combustibles like tobacco or MJ flower. None of them smoke cigarettes & I've noticed vaping of tobacco has almost disappeared among them. They prefer concentrates, which provide consistent, measured doses of MJ & are discreet. A trip to a head shop reveals the prevalent vape competitors.

 

If they do smoke flower, it's rolled & smoked in a spliff, and this is usually done for tribal conviviality. There's hasn't been a lot of puff, puff, pass with covid.

 

BTW, I haven't smoked in months, but if I did, I'd go concentrate as well.

 

All this is purely anecdotal but I don't believe this is going to catch on with anyone except older addicts.

Empirical data may prove me wrong.

 

Congrats to all those who loaded up at the bottom.

[rb]

As far as the vaccine goes, it will be helpful to get people back in stores in order to try out iQOS. It's much harder to transition people over when they can't see it and hold it in person.

 

When I lived in Asia, had a few of my younger (early 20s) friends use iQOS, especially for girls that don't want the smell or bad breath transitioning from cigs. I haven't seen one used in Europe or the States.

 

My anecdotal evidence makes me believe the crowd will skew towards newer, younger users. I also have a hard time seeing this take off when there is already a vaping culture in the states from JUUL etc.

I'm in Europe now and there's plenty of IQOS use where I am. Not much in the paleo population. But into the 40s, it goes.

[K2SO]

As far as the vaccine goes, it will be helpful to get people back in stores in order to try out iQOS. It's much harder to transition people over when they can't see it and hold it in person.

 

When I lived in Asia, had a few of my younger (early 20s) friends use iQOS, especially for girls that don't want the smell or bad breath transitioning from cigs. I haven't seen one used in Europe or the States.

 

My anecdotal evidence makes me believe the crowd will skew towards newer, younger users. I also have a hard time seeing this take off when there is already a vaping culture in the states from JUUL etc.

 

I did see it in Europe. Had a friend there who was a PROLIFIC smoker who switched. Believed that it was somewhat healthier and liked that he was able to do it without stinking up everyone around him. I sat across from him at dinner and he smoked pretty much nonstop, which would have been a nonstarter with combustibles.

 

I think there's a huge potential for them in NA and the rest of the world, because of these benefits. Smoking friends tell me it's 80-90% as good as regular cigarettes, which could be enough to entice people to switch.

 

[kab60]

Came across this one from Morningstar on Twitter

[orion]

"Altria, under an exclusive agreement with PMI, commercializes the IQOS system in the U.S."

 

Was this contract/agreement ever made public? So far I haven´t been able to find this document in any SEC filings. I would like to evaluate the economics of the traditional tobacco business vs. IQOS.

[kab60]

I don't think it's public. I haven't ever seen them go much into detail as to how exactly the arrangement work, but I've been surprised that they haven't pursued IQOS harder, so perhaps the incentives aren't right. Don't know.

 

In other words, I read a bit of GS' recent report on the "revenge of the old economy". They expect commodities to enter a long bullmarket due to years of underinvestment and increased demand due to covid19 stimulus which, unlike after the GFC, will be more broadly based (they assume). I think I said it before (and have bet accordingly), but I think it's quiet incredible that you get a 8-9,5 pct. yield from Altria (depending when you bought in the last few months) considering the current backdrop. It should do fine to good in the current environment just clipping dividends, should do fine in a recession, and if we ever get inflation is there a better place to be with the massive pricing power? Just seems like very cheap optionality.

 

From an old Forbes articles: A recent paper by Junhua Lu of Standard & Poor's found investors can make money by shifting into industries like tobacco, railroads, health care and utilities if they think inflation is going to surge. Lu separated the period between 1998 and 2008 into high-inflation and low-inflation months and found that tobacco stocks, for example, showed an annualized average return of 29.3% in the high-inflation months, compared with 8.1% in the low-inflation ones.