BAT & other tobacco companies - Daily Telegraoh

[MaraMan]

I am no fan of tobacco shares for all sorts of reasons, but I know may on here still are so I thought I would pass the following on. I noticed in the Momey section of the today's Telegraph that a "Portfolio Manager" called Nick Purves said that BAT's dividend is more precarious that it may seem. He feels that they are "overearning" and will eventually have to cut profit margins and concludes "we think, therefore, that at some point there is a significant risk of a dividend reset".

Personally I have avoided them for a couple or more years but those tempted to buy on the strength of their currently attractive dividend may want to bear the above in mind.

MM

[jackdaww]

its quite easy to point out flaws and risks with most of these HYP candidates.

that is why they are high yielders - they carry high risk.

[monabri]

I am no fan of tobacco shares for all sorts of reasons, but I know may on here still are so I thought I would pass the following on. I noticed in the Momey section of the today's Telegraph that a "Portfolio Manager" called Nick Purves said that BAT's dividend is more precarious that it may seem. He feels that they are "overearning" and will eventually have to cut profit margins and concludes "we think, therefore, that at some point there is a significant risk of a dividend reset".

Personally I have avoided them for a couple or more years but those tempted to buy on the strength of their currently attractive dividend may want to bear the above in mind.

MM

I had a look on the DT website - to see if there was an explanation of "overearning" but I couldn't see the article. I tried a search as well using the DT search button.

Any chance you could provide the link?


( In a similar vein, I came across a link to an article in BT in the DT today but I couldn't find the actual article on their website)

[Dod101]

I would imagine the 'over earning' comment is about the tobacco companies' apparent ability to continue raising prices faster than inflation, at least in part because of the addictive nature of their product. Furthermore, taxes are high and so consumers may simply blame the rises on taxes.

I think the BAT problems (if they have any real problems) are to do with their buying out of Reynolds, thus increasing their exposure to the US market and increasing their borrowings significantly. In the long run, we are all dead as they say, and it may be that the tobacco companies do not have the rosiest of futures but who knows? Meanwhile I do not think that the dividend is in any danger, I hope not famous last words.

Dod

[idpickering]

My opinion on this matter is of a similar vein as Dod's. I would add though, that I am not concerned about a, what seems to me to be an unlikely happenstance, dividend cut/rebasing from either tobacco company (IMB & BATS). My top up of my IMB holdings scheduled for next Monday is still going ahead, and I'm likely to top up my BATS holdings in the future too.

Ian.

[MaraMan]

For some reason its tricky to find the article on line, but I did find it here:

It's title is "Nine FTSE heroes with a bumper yield".

https://www.pressreader.com/uk/the-dail ... 5241716036

All the best to the true tobacco believers, I do hope you are right.

MM

PS - There is no definition of "overearning", I assume it means that they will have to cut prices and thus be less profitable.

[Wizard]

For some reason its tricky to find the article on line, but I did find it here:

It's title is "Nine FTSE heroes with a bumper yield".

https://www.pressreader.com/uk/the-dail ... 5241716036

All the best to the true tobacco believers, I do hope you are right.

MM

PS - There is no definition of "overearning", I assume it means that they will have to cut prices and thus be less profitable.

Thanks for the link. I see the comment about overearning and dividend relates to tobacco generally and I do not think his stated reasoning brings any new points to the debate.

Terry.

[monabri]

Nick Purves runs SJP Equity Income

https://www.trustnet.com/factsheets/n/w ... stribution

Rank Largest Holdings %
1 BP 6.81
2 ROYAL DUTCH SHELL 6.68
3 GLAXOSMITHKLINE 5.50
4 STANDARD CHARTERED 5.16
5 MARKS & SPENCER GROUP 4.85
6 TESCO 4.62
7 PEARSON 4.25
8 ANGLO AMERICAN 4.00
9 RSA INSURANCE GROUP PLC 3.95
10 BARCLAYS PLC 3.88

He runs other funds as well but it is not easy to find out what they contain under the bonnet.

Periods Fund Manager(s)
from Feb 03 2001 to present SJP EQUITY INCOME Nick Purves
from Aug 18 2003 to present HALIFAX IM UK INDEX Nick Purves
from Aug 18 2003 to present HALIFAX IM UK INDEX PN Nick Purves
from Sep 30 2010 to present RWC INCOME OPPORTUNITIES Nick Purves
from Oct 13 2010 to present RWC ENHANCED INCOME Nick Purves
from Oct 04 2018 to present TM RWC UK EQUITY INCOME Nick Purves
from Apr 06 2010 to Aug 01 2010 SJP MANAGED GROWTH Nick Purves
from Oct 01 2003 to May 17 2010 SCHRODER INCOME Nick Purves
from Jul 01 2006 to May 17 2010 SUTL CAZENOVE CHARITY EQUITY VALUE Nick Purves

[richfool]

I avoid tobacco stocks for a number of reasons, - party moral and partly that I don't see a long term future for them. However noted they suit some income investors because of their currently high yields.

What does puzzle me though is why Bruce Stout, a cautious animal, - holds two such stocks in the top ten holdings of MYI (Murray International Income) and also Personal Assets (PNL), a defensive IT, holds 3 tobacco stocks in its top ten holdings.

[YeeWo]

I think the BAT problems (if they have any real problems) are to do with their buying out of Reynolds, thus increasing their exposure to the US market and increasing their borrowings significantly.

Have BAT given any guidance on their schedule for reducing the debt? I presume Dividend payout comes before accelerating debt reduction?

[monabri]

I think the BAT problems (if they have any real problems) are to do with their buying out of Reynolds, thus increasing their exposure to the US market and increasing their borrowings significantly.

Have BAT given any guidance on their schedule for reducing the debt? I presume Dividend payout comes before accelerating debt reduction?

Same question for IMB.

[MaraMan]

The only thing I am aware of is that Seeking Alpha stated that BAT is aggressively paying down its debt, but I guess that's not a major surprise following the Reynolds acquisition.

MM

PS - Re IMB "We continue to generate £900m of surplus cash flow, we’ve paid down a further chunk of our debt, and we’ve announced £2bn of asset disposal opportunities,” taken from https://www.financialdirector.co.uk/201 ... co-sector/

[Arborbridge]

I avoid tobacco stocks for a number of reasons, - party moral and partly that I don't see a long term future for them. However noted they suit some income investors because of their currently high yields.

What does puzzle me though is why Bruce Stout, a cautious animal, - holds two such stocks in the top ten holdings of MYI (Murray International Income) and also Personal Assets (PNL), a defensive IT, holds 3 tobacco stocks in its top ten holdings.

Maybe the puzzle is why it's a puzzle! If both are defensive/cautious doesn't that of itself suggest that your fears are overdone?

Arb.

[richfool]

I avoid tobacco stocks for a number of reasons, - party moral and partly that I don't see a long term future for them. However noted they suit some income investors because of their currently high yields.

What does puzzle me though is why Bruce Stout, a cautious animal, - holds two such stocks in the top ten holdings of MYI (Murray International Income) and also Personal Assets (PNL), a defensive IT, holds 3 tobacco stocks in its top ten holdings.

Maybe the puzzle is why it's a puzzle! If both are defensive/cautious doesn't that of itself suggest that your fears are overdone?

Arb.

Maybe, ... though I tend to think it may be more a case of the Managers taking a shorter-term view than mine (and not wanting to give up the high dividend income too soon). Also, I suspect, once they hold a stock, some Managers prefer to hang on (optimistically) rather than take a financial loss and possible loss of face. (Possibly the case with Nick Train and Pearson).

I hold MYI, but not PNL, so perhaps I've hedged my bets. (I have no direct holdings).

[Dod101]

Nick Purves runs SJP Equity Income

https://www.trustnet.com/factsheets/n/w ... stribution

Rank Largest Holdings %
1 BP 6.81
2 ROYAL DUTCH SHELL 6.68
3 GLAXOSMITHKLINE 5.50
4 STANDARD CHARTERED 5.16
5 MARKS & SPENCER GROUP 4.85
6 TESCO 4.62
7 PEARSON 4.25
8 ANGLO AMERICAN 4.00
9 RSA INSURANCE GROUP PLC 3.95
10 BARCLAYS PLC 3.88

He runs other funds as well but it is not easy to find out what they contain under the bonnet.

Periods Fund Manager(s)
from Feb 03 2001 to present SJP EQUITY INCOME Nick Purves
from Aug 18 2003 to present HALIFAX IM UK INDEX Nick Purves
from Aug 18 2003 to present HALIFAX IM UK INDEX PN Nick Purves
from Sep 30 2010 to present RWC INCOME OPPORTUNITIES Nick Purves
from Oct 13 2010 to present RWC ENHANCED INCOME Nick Purves
from Oct 04 2018 to present TM RWC UK EQUITY INCOME Nick Purves
from Apr 06 2010 to Aug 01 2010 SJP MANAGED GROWTH Nick Purves
from Oct 01 2003 to May 17 2010 SCHRODER INCOME Nick Purves
from Jul 01 2006 to May 17 2010 SUTL CAZENOVE CHARITY EQUITY VALUE Nick Purves

Does this help in a discussion about tobacco shares? I must be missing something.

Dod

[monabri]

The chap making the comments re BATS was N.Purves. I was curious to see if any of his funds contained BATS/IMB. I struggled to find much info on his funds other than one (despite looking on the St James Place (SJP) website and other Google searching). I was also trying to find out about the person making the comment, initially wondering if he worked as a hedge fund manager.

[dspp]

One of my key suppliers in my dayjob had a business that a few years ago was 95% exposed to tobacco. They were a tier 1 supplier to the big tobacco companies. Over the last 5-years they have aggressively restructured their business to reduce their tobacco exposure to 50%, whilst remaining a tier 1 supplier to tobacco. They did that by aggressively growing their non-tobacco business. Make of that what you will.

regards, dspp

[Dod101]

One of my key suppliers in my dayjob had a business that a few years ago was 95% exposed to tobacco. They were a tier 1 supplier to the big tobacco companies. Over the last 5-years they have aggressively restructured their business to reduce their tobacco exposure to 50%, whilst remaining a tier 1 supplier to tobacco. They did that by aggressively growing their non-tobacco business. Make of that what you will.

As any investor knows, diversification is a sensible move. Probably nothing more complicated than that.

Dod

[Wizard]

As any investor knows, diversification is a sensible move. Probably nothing more complicated than that.

Dod

Does this help in a discussion about tobacco shares? I must be missing something.

[Dod101]

As any investor knows, diversification is a sensible move. Probably nothing more complicated than that.

Dod

Does this help in a discussion about tobacco shares? I must be missing something.

Not unless dspp was trying to tell us something. Maybe the supplier saw a flaw in being 95% exposed to tobacco and decided to reduce that reliance. I speculate that that my be to diversify.

Dod