The Tobaccos

[OLTB]

I don’t like menthol cigarettes either

[Dod101]

I reckon we have lost about three year's dividends with this week's fall alone. Did I say 'Dearly bought dividends?' That's what I meant.

The FT's comment is why I will not be adding to BAT.

Dod

[idpickering]

I agree Arb, there’s is some degree of emotional bias. By my metrics I should dump my fag shares, but I’m not going to.

Ian.

What metrics are you looking at which says "dump fag shares" as a matter of interest? It hadn't occurred to me.

I suppose one can make a case for dumping almost any share, and that's the problem! - which I guess was one the original drivers of the SI idea - to avoid the quick judgements which we are all prone to make from time to time and say "easy back a bit - just let the market sort it out".

Arb.

'Metrics' was probably the wrong word to use, as it implies some kind of maths maybe? I meant by my 'standards' that I expect from my shares. Having screened the chosen shares for my HYP, I hope to have chosen well, but sometimes I get it wrong (CLLN). I have more faith in tobacco shares and can forgive their current weakness, and am comfortable to not act rashly with them.

Ian.

[idpickering]

I reckon we have lost about three year's dividends with this week's fall alone. Did I say 'Dearly bought dividends?' That's what I meant.

The FT's comment is why I will not be adding to BAT.

Dod

I was thinking about your phrase 'Dearly bought dividends?' only yesterday funnily enough Dod. It has certainly struck a cord with me. Is the share/yield worth the risk/dosh spent? Your comment has made me more cautious, and really think about what I'm doing, so thank you for that.

Ian.

[monabri]

According to the 2017 Annual Report, BAT derive their profits thus (page 34):

http://www.bat.com/group/sites/UK__9D9K ... F_2017.pdf



So, approx 20% of their profits comes from the USA.

In the US, BATS have quite a range of products.

Newport (menthol) ,Natural American Spirit, Pall Mall (in different varieties - one of which is a menthol offering)
Doral, Misty, Capri, Camel SNUS (smokeless , heating product)
Grizzly & Kodiak (smokeless), VUSE (vapour), Zonnic (a gum)

Profits..... how much comes from "menthol" flavoured products from the array of products above? (period - 2015)

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5711620/

The report seems to suggest about 30% (table 1 ..please correct this if I've misread the article and the opening lines of the discussion section)

So, we have at risk 30% of 20% of profits (assuming a mentholated cigarette generates more or less the same profit as a conventional cigarette)..... approx 6%. - This is a ball park guess based on general US data - we would have to dig further into BATs info to find out the real number but maybe 30% is reasonable ??


Are they taking it lying down - from the FT :

"Big Tobacco is gearing up for a fight on menthol, a far more important product to the industry’s incumbents. Altria (a BATS competitor) called the proposed menthol ban “extreme”. BAT said: “The science today does not support treating them differently from other cigarettes.”

(IMB are raising a similar question relating to the science angle).

https://www.ft.com/content/56ac9180-ea0 ... 4da4c0f981


"Yet the regulator would need to prove that menthol cigarettes was indeed worse for public health than regular cigarettes, said Rob Smith, policy analyst at Capital Alpha."

And the silver lining for BATS/IMB

"the new regulation of ecigarettes could have upsides for Big Tobacco, which has been wrong-footed by the explosive growth of Juul. Now that Juul’s business model is itself being disrupted, the rest of the industry can “hit the reset button”, said Brett Cooper, analyst at Consumer Edge."

[monabri]

I should disclose that my holdings are

IMB 3.9%

BATS 4.1%

or a combined 9.3% of income....so no more top ups!

[TUK020]

I agree Arb, there’s is some degree of emotional bias. By my metrics I should dump my fag shares, but I’m not going to.

Ian.

What metrics are you looking at which says "dump fag shares" as a matter of interest? It hadn't occurred to me.

I suppose one can make a case for dumping almost any share, and that's the problem! - which I guess was one the original drivers of the SI idea - to avoid the quick judgements which we are all prone to make from time to time and say "easy back a bit - just let the market sort it out".

Arb.

===================================

but this laid back approach has cost people - carillion and a few others.

In 2014 Shell went from over 2500 to 1500 in 2015. I am very glad I sat on my hands and did not jump ship.
BAT - so menthol gets banned, and they re-formulate the big menthol brand (Kent?) as spearmint etc.........
I think I am invested up to my purchase cost limit on BAT, but will be adding in my kids' ISAs.

[Dod101]

I do not think there is any need for panic and I certainly do not mean that but apart from anything else, I have about 7.5% of my portfolio on tobacco, rather more in Imps than BAT. That is about what one might expect with primarily a HYP portfolio and I would not be adding to that in any case.

monabri may be right although the figure that is quoted in the papers seems to be that about 25% of Bat's profits comes from menthol. That sounds very high but as I am not a smoker I have no idea if that is realistic. I do not even know what is the difference between menthol and otherwise.

Dod

[monabri]

Barclay's report suggests 36pc ...broadly in line with my estimate above but a slightly lower percentage of profit.

" Menthol accounts for 36pc of the US market, according to analysts at Barclays, and generates around a quarter of BAT’s profit as it owns Newport, the biggest menthol cigarette brand in the US."

( article might be locked)
https://www.telegraph.co.uk/business/20 ... igarettes/


So, revising the numbers, we have a worse case of 25% of 20% ......or 5% of overall global profits.

https://www.telegraph.co.uk/business/20 ... -cigarette reduction

Are menthol flavoured cigarette smokers simply going to quit or move onto a substitute, be it vape, gum or conventional cigarettes? Maybe they will stockpile or obtain them from across the borders or ( )buy a pack of menthol sweets?

[Itsallaguess]

Is there a risk that concentrating on the specific menthol issue is in danger of missing a broader underlying problem?

This is further direct intervention into core tobacco markets - and I think that direction of travel is more worrying than the menthol hurdle itself, so whilst it might be reassuring to keep suggesting that the market is overplaying the impact of any specific menthol hit (aye....), perhaps the market is simply taking a firmer view on that broader direction of travel than just the potential impact of this single issue....

Cheers,

Itsallaguess (holder of both tobacco shares...)

[Bouleversee]

Monabri: Not what the ft says. To reiterate previous post:


Postby Bouleversee » November 17th, 2018, 9:34 am
Ft refers to fear of dividend cut since menthol accounts for25% of BATs group earnings.

I have to say, however, that I find that somewhat surprising. The mint flavoured version is no more toxic than ordinary tobacco flavoured so I wonder why the discrimination, esp. since it would appear that most people prefer the plain version.

[monabri]

Monabri: Not what the ft says. To reiterate previous post:


Postby Bouleversee » November 17th, 2018, 9:34 am
Ft refers to fear of dividend cut since menthol accounts for25% of BATs group earnings.

I have to say, however, that I find that somewhat surprising. The mint flavoured version is no more toxic than ordinary tobacco flavoured so I wonder why the discrimination, esp. since it would appear that most people prefer the plain version.

I'm not disagreeing that mentholated products give BATS 25% of their global profits, just that it is 25% of the profits in the US where there might be a ban ..or 5% on global profits

if the ban was to be expanded to other markets that would be nasty!

( One of the articles indicates why mentholated products are popular).

[IanTHughes]

Did I say 'Dearly bought dividends?' That's what I meant.

But surely those same dividends are cheaper now? In fact, with a yield of 7.21%, British American Tobacco PLC (BATS) is now a High Yield Portfolio (HYP) candidate at last. BATS even gets in ahead of the 7.12% offered by Imperial Brands PLC (IMB)


Ian

[Dod101]

Did I say 'Dearly bought dividends?' That's what I meant.

But surely those same dividends are cheaper now? In fact, with a yield of 7.21%, British American Tobacco PLC (BATS) is now a High Yield Portfolio (HYP) candidate at last. BATS even gets in ahead of the 7.12% offered by Imperial Brands PLC (IMB)

That goes without saying but I think it was pretty clear that I was referring to those who were/are holders.

Dod

[monabri]

That goes without saying but I think it was pretty clear that I was referring to those who were/are holders.

Dod

Crystal...and even more expensively bought for recent buyers just prior to the fall in share price.

[ReformedCharacter]

But surely those same dividends are cheaper now? In fact, with a yield of 7.21%, British American Tobacco PLC (BATS) is now a High Yield Portfolio (HYP) candidate at last. BATS even gets in ahead of the 7.12% offered by Imperial Brands PLC (IMB)

Ian

Yes, BATS are in bargain basement territory IMO.

RC

[Gengulphus]

but this laid back approach has cost people - carillion and a few others.

And the opposite approach of getting out on signs of things going badly wrong has also cost people - BHP Billiton in late 2015 and a few others.

One can choose which type of risk one takes, but the only way of getting rid of it is to get out of share investment entirely.

Gengulphus

[Arborbridge]

I agree Arb, there’s is some degree of emotional bias. By my metrics I should dump my fag shares, but I’m not going to.

Ian.

What metrics are you looking at which says "dump fag shares" as a matter of interest? It hadn't occurred to me.

I suppose one can make a case for dumping almost any share, and that's the problem! - which I guess was one the original drivers of the SI idea - to avoid the quick judgements which we are all prone to make from time to time and say "easy back a bit - just let the market sort it out".

Arb.

===================================

but this laid back approach has cost people - carillion and a few others.

To come back to this point: yes of course it has "cost people". That's part and parcel of how HYPing works: one must expect to lose sometimes. No one is claiming that HYP is the best investment scheme or that you will get through twenty years without hitting some complete disasters, but the point is, that it works well enough for the purpose: that is to provide an income.

We can all cherry pick illustrations of successes and failures but these particular examples are all rather tangential to running a HYP. Despite all the disasters, HYP can still provide a flow of income sufficient unto the day - this is demonstrated by my HYP by HYP1 and by TJH's HYP, and no doubt several others.

No one has yet shown an easily applied technique for improving the odds of jumping from fryinh pan into the fire. As far as I know, only Gengulphus and myself have attempted to follow up on whether we have gained anything by selling out and re-buying. In both cases the feeling was that it's touch and go whether one gains or not.

And finally, do we really think that IT managers do not also suffer from these ups and downs? Of course they do, but if we just hold an IT and don't get drawn into the detail (as we do with our own HYPs) we probably aren't particularly aware of it.

Arb.

[Arborbridge]

But surely those same dividends are cheaper now? In fact, with a yield of 7.21%, British American Tobacco PLC (BATS) is now a High Yield Portfolio (HYP) candidate at last. BATS even gets in ahead of the 7.12% offered by Imperial Brands PLC (IMB)

Ian

Yes, BATS are in bargain basement territory IMO.

RC

Yes, this fall from grace has been spectacular, especially in the past few days or so. Whether it's a bargain or whether we are heading for another RBS type 90% wipe out, none of us know. But for the moment I will not be topping-up - not just because I don't have resources, but I would prefer to see a definite end to the price falls before even thinking of it.
Interestingly, BATs had increased in price so well that I've never needed to put in a whole "unit" of capital so my exposure is less than with other shares.

People have written on these blogs about what a wonderful HYP share BATs is - and so it may well continue to be, but also: here's a timely reminder about the old adage that one shouldn't fall in love with a share, for it will never love you back.


Arb.

[evilbungle]

This thread is really testing my resolve for not smoking. Having quit 10 years ago I still find myself drawn to buying more simply by the discussion of different brands. I definitely can not see that Menthol smokers will simply quit if menthol is banned. In fact with a ban on menthol coming in these smokers will be looking for a new brand which could be a potential upside for IMB or BATS (I know it is also a risk that they could find their preferred brand somewhere else.) Remember these are people who have continued to smoke after advertising bans, indoor smoking bans, graphic health warnings, society pressure, adverts of kids begging their parents not to smoke etc... I just don't see the loss of a mint flavour being the nail in their addiction. So I am happy to hold the shares (If not the product)

Now I am off to walk around until my cravings go down again.