BATS

[monabri]

Down to 3553p at one point today (~5.5% yield). There was a big sell off today. Is this an opportunity for a top up or......?


"Tobacco stocks have moved sharply lower in morning trading, dragging the NYSE Arca Tobacco Index down by 5.2%. The index is extending the pullback seen over the two previous sessions.

Philip Morris (PM) is posting a particularly steep loss after reporting first quarter earnings that exceeded analyst estimates but on weaker than expected revenues."


From London Stock Exchange
http://www.londonstockexchange.com/exch ... 39600.html

[westmoreland]

BAT now £36.30 and IMB now £23.20.

it was because of philip morris delivering an quarterly update the market didnt react well to. IMB now down to EV/EBITDA of 9.5.

The seller of Marlboros outside the U.S. reported revenue excluding excise taxes of $6.9 billion, less than the $7.03 billion that analysts surveyed by Bloomberg had been projecting. Shares slipped as much as 15 percent as of 10:17 a.m. in New York, the biggest intraday drop since 2008.

in theory, you would have thought that if one manufacturer reports volume declines ahead of the market decline, that the competitors have mopped up some of the business.

i'll certainly be having a look at BAT. the maths are complicated a little by the recent takeover, though

[flyer61]

Bought some more PM, hopefully the divi will continue onwards...

[bluedonkey]

What does EV stand for, please?

[idpickering]

For me, disappointing though the fall in both shares sp are, will it change my stance on my holdings? I'm not about to jump ship, so definitely not! I bought both of these as long term holds, and to me they've become even more attractive as HYP shares. I have both IMB & BATS in my HYP, and have made a number of top ups of IMB recently, and may well top up BATS as well now too. As can be seen via my post "My HYP as of now" here; viewtopic.php?f=15&t=11247 tobacco form just 5.8% (less now ) of my HYP in capital value terms. HYP is an income strategy, and I'd have no problem buying some more of both these pair, for the juicy dividends, and yields on offer from them both. In the case of BATS, I wonder how much of the sp fall is just 'profit taking?'

Ian.

[westmoreland]

What does EV stand for, please?

enterprise value - adds on net debt to give the price it would cost if it was taken over at the current price.

[nk104]

In the short term it's a voting machine, in the long-term it's a weighing machine. That's what I'm telling myself anyway.

At £36.11, it's a historic P/E of 12.7, prospective P/E of 12. Expected dividends for the year of 195.2p, so a yield of 5.4 per cent.

So I've nibbled a few more.

[idpickering]

In the short term it's a voting machine, in the long-term it's a weighing machine. That's what I'm telling myself anyway.

At £36.11, it's a historic P/E of 12.7, prospective P/E of 12. Expected dividends for the year of 195.2p, so a yield of 5.4 per cent.

So I've nibbled a few more.

You're right nk104. I may well be right behind you.

Ian.

[westmoreland]

as a comparison, coca cola had revenue in 2011 of $46.5m (operating profit $10.2bn) and the most recent year, revenue of $35.4bn and operating profit of $9.4bn. consensus forward P/E of 21.

the market does seem very receptive to any doom and gloom about tobacco volumes.

[Bouleversee]

Westmoreland said:

"in theory, you would have thought that if one manufacturer reports volume declines ahead of the market decline, that the competitors have mopped up some of the business."

Not necessarily. It could be that many have given up smoking for health or financial reasons, as I did myself some years ago, or have switched to vaping or heat-not-burn and do it less often. I think it is quite rare for smokers to switch brands of cigarettes themselves. It may have been on here that even in Japan where consumption was very high it has fallen dramatically and this applies to many countries.

Having topped up IMB at the end of last year and beginning of this, I definitely won't be topping up again. I'm not very good at taking losses - always leave it too late - but I shall be keeping an eye out for an exit if they ever get close to what I paid.

[tjh290633]

My top-up rankings are very volatile. BATS has suddenly jumped to the top from almost nowhere, it was 12th last weekend. IMB is third, having been 10th.

The top 10 need very little movement to change places. Several are on the same level, but are listed alphabetically.

Top-up          Income                     Cost                
Rank     EPIC   Rank     EPIC   % Income   Rank   Epic   % Cost
     1=  BATS        1   TW.       5.71%      1   GSK     4.39%
     1=  NG.         2   RDSB      4.40%      2   MKS     4.23%
     3   IMB         3   MARS      4.34%      3   PSON    4.00%
     4   BT.A        4   RIO       4.22%      4   RDSB    4.00%
     5   TATE        5   SSE       4.16%      5   LLOY    3.96%
     6   VOD         6   IMB       4.16%      6   MARS    3.89%
     7=  MKS         7   GSK       3.97%      7   CLLN    3.84%
     7=  SSE         8   BP.       3.89%      8   SSE     3.76%
     7=  UU.         9   MKS       3.88%      9   AV.     3.76%
    10=  BLT        10   AV.       3.72%     10   BLT     3.54%
    10=  MARS       11   ADM       3.68%     11   LGEN    3.42%
    12   LLOY       12   VOD       3.57%     12   BP.     3.36%

MARS and MKS are disqualified by my rules, having too high a share of Income and cost, respectively.

TJH

[CommissarJones]

By coincidence, John Kingham put up an article about BATS on his website this week.

https://www.ukvalueinvestor.com/2018/04 ... alue.html/

[Bouleversee]

A very good article. Presumably he wouldn't top up now either. Do let us know when he gets around to writing about IMB who do seem to be lagging behind.

[monabri]

By coincidence, John Kingham put up an article about BATS on his website this week.

https://www.ukvalueinvestor.com/2018/04 ... alue.html/

Mr Kingham wrote

"As a general rule I only buy stocks that are in the top 50 on that screen, so if I was looking to buy BAT in the next few months (which, as I mentioned above, I’m not) then that rule would give me the following price target:
Target buy price: I would only consider buying BAT below 5,000p"


So, at 3650p, some 27% lower than the target buy price......

[westmoreland]

Westmoreland said:

"in theory, you would have thought that if one manufacturer reports volume declines ahead of the market decline, that the competitors have mopped up some of the business."

Not necessarily. It could be that many have given up smoking for health or financial reasons, as I did myself some years ago, or have switched to vaping or heat-not-burn and do it less often. I think it is quite rare for smokers to switch brands of cigarettes themselves. It may have been on here that even in Japan where consumption was very high it has fallen dramatically and this applies to many countries.

Having topped up IMB at the end of last year and beginning of this, I definitely won't be topping up again. I'm not very good at taking losses - always leave it too late - but I shall be keeping an eye out for an exit if they ever get close to what I paid.

there is actually significant competition at the 'deep discount' sector in western markets. this is a subsector that has developed since prices began getting very high 5 or so years ago (in other words, people ordering the cheapest brand). basically the cigarettes are subsidised by higher margin ones. PMI have made a move in the 'deep discount' UK market and some analysts believe the overall profit pool in the UK is falling - watch this space.

basically, the evidence is showing that the middle ground is getting hollowed out. MB and JTI are most exposed to the above phenomenon. remember a very high percentage of IMB's profit comes from three markets, UK, GER and AUS.

BAT are not reliant on markets where this is a significant risk.

[Pendrainllwyn]

John Kingham writes "On the one hand, I am already a BAT shareholder and BAT is a holding in my defensive value portfolio. I am happy to hold BAT because I think there’s a reasonable chance it can continue to grow for the next decade or more." and shortly thereafter "On the other hand, if I wasn’t already a BAT shareholder I would probably not invest in the company at the moment, regardless of price."

Maybe I am being too literal but that makes no sense to me at all. Happy to hold at 3,700p but probably not buying in at any price. Really? This kind of emotional thinking is not an investor's best friend. Shame because some of his other arguments made sense.

I have never held BATS but have taken a look thanks to this thread. It looks interesting to me at 3,700p and I would back up the truck at 37p. Now I need to get my head around investing in Tobacco for the first time.

[idpickering]

Maybe I am being too literal but that makes no sense to me at all. Happy to hold at 3,700p but probably not buying in at any price. Really? This kind of emotional thinking is not an investor's best friend. Shame because some of his other arguments made sense.

I have never held BATS but have taken a look thanks to this thread. It looks interesting to me at 3,700p and I would back up the truck at 37p. Now I need to get my head around investing in Tobacco for the first time.

I do agree with you regarding the "emotional thinking". I never thought of tobacco as a cyclical. I've held tobacco shares since my first purchase of BATS shares on 15 Dec 2006, and IMB joined my HYP first on 17 Aug 2010. They have been a main stay in my HYP ever since, and in the past accounted for 10% in capital value terms of my HYP, but not any more as I've added elsewhere. I have no intention of selling my tobacco holdings.

Ian.

[MaraMan]

I tend to agree with the view expressed here:

https://moneyweek.com/big-tobacco-stock ... t-of-puff/

[Dod101]

The Moneyweek article is plausible. It looks as if tobacco shares are simply out of favour and any shortfall in expectations is driving them lower. So far though the dividends have not been affected and if they can keep increasing them that is bound to give the shares a floor.

I will do nothing but just sit on my holdings. I think topping up is not really a very sensible option unless you know where that floor is. I don't.

Dod

[moorfield]

I see some parallels with the Big Pharma companies and their ongoing "patent cliff" challenges. The companies that find ways to innovate will persist, and BATS has an impressive R&D facility (see http://www.bat-science.com). For example, I recall reading last year about alternative uses of tobacco, such as a biofuel (and have just found it again see https://www.theguardian.com/sustainable ... renewables). In the meantime, I'm also happy to hold and top up both BATS and IMB at current yields, and have portfolio limits to encourage me not to bet the farm on their future dividends.