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What are you smoking?

General discussions about equity high-yield income strategies
Wizard
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What are you smoking?

#164330

Postby Wizard » September 5th, 2018, 9:38 am

Tobacco shares seem to remain out of favour, but not so much that the yields are a flashing danger signal. On that basis I am considering either a top up or new addition in this sector. The candidates I am looking at are:

Imperial Brands (IMB)
Mkt Cap £26bn
Yield 6.3%
Growth Rate 5yrs 10.0%
Cover 1.6
PE 10.2

British American Tobacco (BATS)
Mkt Cap £85bn
Yield 5.3%
Growth Rate 5yrs 6.5%
Cover 1.5
PE 13.1

Philip Morris (PM)
Mkt Cap $121bn
Yield 5.9%
Growth Rate 3yrs 3.1%
Cover 1.1
PE 18.9

Altria Group (MO)
Mkt Cap $110bn
Yield 5.5%
Growth Rate 3yrs 8.3%
Cover 1.3
PE 10.6


I already hold IMB, so this would be a top up, any of the others would be new additions. Looking at the numbers above IMB seems the best choice, the down sides being although comfortably FTSE100, it is small against the competition and any of the others would give company diversification within the sector. The purchase would be in my SIPP so no US withholding tax to muddy the water.

Thoughts on whether I should just stick to IMB or look to add a new share much appreciated.

Terry.

tjh290633
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Re: What are you smoking?

#164337

Postby tjh290633 » September 5th, 2018, 9:55 am

I have had IMT/IMB ever since they split off from Hanson.

I also hold BATS more recently. They would be my choice for a second share in fags, but you may want the foreign shares, although all are international in their activities.

TJH

Darka
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Re: What are you smoking?

#164358

Postby Darka » September 5th, 2018, 10:46 am

I topped up IMB recently as I already have enough BATS and I prefer the higher yield/cover, etc.

regards,
Darka

YeeWo
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Re: What are you smoking?

#164428

Postby YeeWo » September 5th, 2018, 3:41 pm

http://www.proactiveinvestors.co.uk/com ... 04055.html

The core of the story : "Canadian bank RBC has downgraded both British American Tobacco plc (LON:BATS) and Imperial Brands PLC (LON:IMB) to ‘Underperform’ from ‘Sector Perform’ on predictions of lower margins as both firms sought to replace their core cigarette businesses with next-generation products (NGPs).

RBC’s analysts said they “expected relatively lower margin [NGPs] to continue to outgrow the core cigarette business”, which would lead to a “negative mix effect on profitability”, cutting their target prices for BAT to 3,400p from 3,900p and for Imperial to 2,400p from 2,900p respectively on the newly reduced margin expectations."

I'm really unsure if margins are sustainable in any new-era of nicotine consumption. I'm quite worried about barriers-to-entry being eroded as new entrants are entering the "safe-tobacco" space all the time. SWMBO is an ex-BAT employee and from what I've seen over the years the Global Nature of BAT at least should sustain earnings for the foreseeable. AIUI the acquisition of Reynolds has been a bit of a mess, let's see what synergies can be derived!

Disc : At 3701p BATS is 6.3% of portfolio on an XIRR of -15.09%, At 2693p IMB is 6.9% of portfolio on an XIRR of -13.22%. Tobacco hasn't thus far been good for my financial-health! I've invested 5-figure sums in both businesses' this year on SP weakness.
Good Luck All! ;)


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