The Lemon Fool

Trading update - ahead of closed period commencing 1 January 2019

· The business continues to perform well and full year guidance remains unchanged

· Continued good market share growth in combustibles, driven by the Strategic Brands

· Strong growth across THP, Vapour and Oral (PRRP) categories

· The US is performing well with volume in line with expectations

· De-leveraging remains on track

· Remain well placed to manage US regulatory proposals

Dod101 wrote:Thanks Ian. I see the tobaccos are well up this morning, probably for good reason. Were it not for these pesky US regulators...............

Dod

Quint wrote:I recently added BATS to the income section of my SIPP to join Imperial Brands.

Arborbridge wrote:Government in crisis, pound down, possible leadership election - stock market up - what the heck?

idpickering wrote:

Quint wrote:I recently added BATS to the income section of my SIPP to join Imperial Brands.

That’s a good move imho. I’ve held the pair of them for years. Hedging my bets between them In the process.

Ian.

Dod101 wrote:Seeing the dismal performance of BAT in 2018, Woodford got his sale correct so you never know he might be right in buying in again. I am still in shock when I see the 50% loss on BAT over the year. It now yields about the same as Imps so maybe it is about right and the peak of over £50 was simply froth. Anyway I suppose we ought simply to be glad that the dividend is holding up well enough. It looks oversold but I will not be buying any more.

Dod

Dod101 wrote:Seeing the dismal performance of BAT in 2018, Woodford got his sale correct so you never know he might be right in buying in again. I am still in shock when I see the 50% loss on BAT over the year. It now yields about the same as Imps so maybe it is about right and the peak of over £50 was simply froth. Anyway I suppose we ought simply to be glad that the dividend is holding up well enough. It looks oversold but I will not be buying any more.

Dod

Wide margin of safety

Sage aside, I see so much value on offer across the board that it’s hard to highlight any one of the nine stocks for special attention. British American Tobacco (BAT) is perhaps the most eye-catching, having the lowest P/E by some margin at 7.9 and with the second-highest dividend yield at 8.5%.

Tobacco stocks in general have fallen out of favour over the last year or two, but BAT has been hit particularly hard by adverse investor sentiment. It’s suffered not only from sector-wide concerns about regulation, but also from its much higher exposure than its peers to the US menthol cigarettes market. Regulators there are looking at banning menthol cigarettes. Another concern about the company is its current relatively high level of debt, following its $49bn acquisition of Reynolds American.

With investors shying away from the sector and the firm having company-specific issues to boot, its shares have fallen considerably further than those of its rivals. They’re currently 56% down from their all-time high of 5,643p in the summer of 2017. But I think the market’s being far too pessimistic about the company’s future.

The menthol cigarettes ban in the US is unlikely to happen for years, if ever, while the company’s debt-reduction plans look perfectly plausible to me. Moreover, with its share price having been hammered down to the extent it has, it offers a wide margin of safety against any future earnings setback.

monabri wrote:At the moment, tobacco is "controlled" by the big companies and that has been the way smokers got their nicotine hit. However, what is the threat on sales to BATS /IMB from the many e-cig shops that are on the high street? Who controls the raw ingredients that these e- cig shops are selling?