Re: British American Tobacco (BATS)

[Tara]

Moderator Message:
Given that this has nothing to do with company news, one can only speculate as to why it was considered appropriate in the first place to put it there, and then waste moderators' time moving it... -- MDW1954

Given the decline of cigarettes and the as yet unknown safety and profitability of so called Next Generation Products, would it not be better for BATS to try to start to diversify completely away from tobacco in to some other industry?

For example Altria has a big investment in AB InBev. Would it not be a better future strategy for BATS to make a big investment in a company like Diageo for example? Or perhaps a big investment in a large retailer like Tesco or Sainsbury?

[tjh290633]

Given the decline of cigarettes and the as yet unknown safety and profitability of so called Next Generation Products, would it not be better for BATS to try to start to diversify completely away from tobacco in to some other industry?

For example Altria has a big investment in AB InBev. Would it not be a better future strategy for BATS to make a big investment in a company like Diageo for example? Or perhaps a big investment in a large retailer like Tesco or Sainsbury?

Cannabis or heroin, perhaps?

TJH

[Tara]

Given the decline of cigarettes and the as yet unknown safety and profitability of so called Next Generation Products, would it not be better for BATS to try to start to diversify completely away from tobacco in to some other industry?

For example Altria has a big investment in AB InBev. Would it not be a better future strategy for BATS to make a big investment in a company like Diageo for example? Or perhaps a big investment in a large retailer like Tesco or Sainsbury?

Cannabis or heroin, perhaps?

TJH

They already have investments in cannabis but as with the NGP there will likely be many issues with future regulations and safety concerns. Far better to start to diversify completely away from tobacco and cannabis.

[Tedx]

I'd suggest windfarms, but they'd be the wheeziest, weak assed windfarms ever.

[Dod101]

Given the decline of cigarettes and the as yet unknown safety and profitability of so called Next Generation Products, would it not be better for BATS to try to start to diversify completely away from tobacco in to some other industry?

For example Altria has a big investment in AB InBev. Would it not be a better future strategy for BATS to make a big investment in a company like Diageo for example? Or perhaps a big investment in a large retailer like Tesco or Sainsbury?

They tried all that some years back, were they not into insurance and other stuff? In the dnd though they have up and returned to their knitting.

Dod

[Tedx]

They had a go at a vaccine during the pandemic, so maybe some kind of pharma tie up is the way forward.

[Dod101]

Given the decline of cigarettes and the as yet unknown safety and profitability of so called Next Generation Products, would it not be better for BATS to try to start to diversify completely away from tobacco in to some other industry?

For example Altria has a big investment in AB InBev. Would it not be a better future strategy for BATS to make a big investment in a company like Diageo for example? Or perhaps a big investment in a large retailer like Tesco or Sainsbury?

They tried all that some years back, were they not into insurance and other stuff? In the dnd though they have up and returned to their knitting.

Dod

Sorry about that. I was trying to post via my iphone. My big fingers did not work well. Anyway just looked it up. They owned Eagle Star and Allied Dunbar at one time as well as inter alia, Argos would you believe?

I think there is a lot of life left in their current brands and they should just continue with that for now.

Dod

[Tara]

Given the decline of cigarettes and the as yet unknown safety and profitability of so called Next Generation Products, would it not be better for BATS to try to start to diversify completely away from tobacco in to some other industry?

For example Altria has a big investment in AB InBev. Would it not be a better future strategy for BATS to make a big investment in a company like Diageo for example? Or perhaps a big investment in a large retailer like Tesco or Sainsbury?

They tried all that some years back, were they not into insurance and other stuff? In the dnd though they have up and returned to their knitting.

Dod

Yes BATS used to own Eagle Star and Farmers but they sold to Zurich many years ago.

So what is their plan now for the inevitable decline of cigarettes? New tobacco products and cannabis are going to have constant issues with regulators around the world and they will also leave BATS constantly vulnerable to big lawsuits and fines. It is also unlikely that these products can ever replace the huge profits that cigarettes have provided in past years.

Far better to start now and diversify completely away from Tobacco/NGP/Cannabis, as Altria has done with AB InBev, and start to build stakes in leading companies such as Diageo and Unilever.

[csearle]

Far better to start now and diversify completely away from Tobacco/NGP/Cannabis, as Altria has done with AB InBev, and start to build stakes in leading companies such as Diageo and Unilever.

I suppose the company's expertise is in addictive products. Many of the skills of the employees will overlap with other industries, but the core of their expertise is clear.

If they abandon what their core expertise is in, then they are effectively newcomers in some other market. Their only real advantage would be in their size. I can imagine that their leadership might tend towards sticking with what they know they know, which includes I presume managing potential litigation. C. [Discl. I hold]

[Tara]

Far better to start now and diversify completely away from Tobacco/NGP/Cannabis, as Altria has done with AB InBev, and start to build stakes in leading companies such as Diageo and Unilever.

I suppose the company's expertise is in addictive products. Many of the skills of the employees will overlap with other industries, but the core of their expertise is clear.

If they abandon what their core expertise is in, then they are effectively newcomers in some other market. Their only real advantage would be in their size. I can imagine that their leadership might tend towards sticking with what they know they know, which includes I presume managing potential litigation. C. [Discl. I hold]

The UK is planning to be smoke free within a few years, and the US and EU will probably be on the same track. So where will cigarettes and BATS be in 10 years and in 20 years time, let alone in 50 years time? The company and the industry could be obsolete within 50 years. Is it not better to start building stakes in other growth industries now? At least it will ensure the future of the company.

[AJC5001]

The UK is planning to be smoke free within a few years, and the US and EU will probably be on the same track. So where will cigarettes and BATS be in 10 years and in 20 years time, let alone in 50 years time? The company and the industry could be obsolete within 50 years. Is it not better to start building stakes in other growth industries now? At least it will ensure the future of the company.

Have you asked ChatGPT?

Adrian

[torata]

Far better to start now and diversify completely away from Tobacco/NGP/Cannabis, as Altria has done with AB InBev, and start to build stakes in leading companies such as Diageo and Unilever.

I suppose the company's expertise is in addictive products. Many of the skills of the employees will overlap with other industries, but the core of their expertise is clear.

If they abandon what their core expertise is in, then they are effectively newcomers in some other market.

I think JT (Japan Tobacco) is quite interesting in that respect.
At one time, they considered themselves as a 'packaging' industry for the general consumer, so not just tobacco ('dry' packaging), but also 'wet' packaging, so making and selling canned drinks like coffee. They also moved into pharmaceuticals about the same time, and that business continues. At one point I heard they were trying to develop a vaccine for Covid based on the tobacco plant (AFAIK, they don't try to develop all of their APIs from tobacco!)

torata

[Dod101]

I suppose the company's expertise is in addictive products. Many of the skills of the employees will overlap with other industries, but the core of their expertise is clear.

If they abandon what their core expertise is in, then they are effectively newcomers in some other market.

I think JT (Japan Tobacco) is quite interesting in that respect.
At one time, they considered themselves as a 'packaging' industry for the general consumer, so not just tobacco ('dry' packaging), but also 'wet' packaging, so making and selling canned drinks like coffee. They also moved into pharmaceuticals about the same time, and that business continues. At one point I heard they were trying to develop a vaccine for Covid based on the tobacco plant (AFAIK, they don't try to develop all of their APIs from tobacco!)

torata

Thinking about it, I would think it likely that BAT will eventually become 'The BAT Income and Growth Investment Trust plc' once its tobacco operations become a bit more modest than they are now. I think though that they have some way to go considering that they are said to be about the biggest tobacco company in the world. We forget in this country, now that tobacco smoking is all but stamped out, that it is still a huge business in many countries. I suspect that it is a good thing that we have banned smoking in confined spaces, particularly in restaurants and pubs but there is something I quite like about it when I go into a tobacconist in somewhere like Italy and get the smell of cigarette smoke. Takes me back to my youth although I have never smoked a cigarette in my life.

Dod

[WickedLester]

What's wrong with managed decline? They can either spend cash buying businesses in different industries which may or may not prove a success or simply pay out the cash to their shareholders and let them decide what to do with it themselves.

[stevensfo]

I think JT (Japan Tobacco) is quite interesting in that respect.
At one time, they considered themselves as a 'packaging' industry for the general consumer, so not just tobacco ('dry' packaging), but also 'wet' packaging, so making and selling canned drinks like coffee. They also moved into pharmaceuticals about the same time, and that business continues. At one point I heard they were trying to develop a vaccine for Covid based on the tobacco plant (AFAIK, they don't try to develop all of their APIs from tobacco!)

torata

Thinking about it, I would think it likely that BAT will eventually become 'The BAT Income and Growth Investment Trust plc' once its tobacco operations become a bit more modest than they are now. I think though that they have some way to go considering that they are said to be about the biggest tobacco company in the world. We forget in this country, now that tobacco smoking is all but stamped out, that it is still a huge business in many countries. I suspect that it is a good thing that we have banned smoking in confined spaces, particularly in restaurants and pubs but there is something I quite like about it when I go into a tobacconist in somewhere like Italy and get the smell of cigarette smoke. Takes me back to my youth although I have never smoked a cigarette in my life.

Dod

Your comment about the smell is interesting, since I hate the smell. I smoked for about 6 months as a student, but it was really peer pressure and I finally realised that I didn't really enjoy it. However, I always liked cigars though I didn't inhale for those. The last cigar was approx 30 years ago when our eldest was born. When my sister visits us, I take a few drags on her cigarette outside and enjoy it, but for some reason, I can't stand the smell at other times.

Steve

PS My Grandfather had a huge cigar box and when I was about 11, I pinched one from each compartment and walked along Hunstanton cliffs, trying each one. I think that I came back looking a bit green, but I was already an expert on cigars!

[Tara]

What's wrong with managed decline? They can either spend cash buying businesses in different industries which may or may not prove a success or simply pay out the cash to their shareholders and let them decide what to do with it themselves.

Well given the decline of cigarettes, and given enough years, the market for tobacco companies like BATS will eventually disappear in most countries and there is no guarantee or even any evidence yet that Next Generation Products will prove to be profitable or safe. These tobacco companies may eventually just decline and disappear and that is not a very promising future for a company or for its stakeholders.

Would it not be better to start to diversify now into other sectors so that the company will have a successful future? For example they could perhaps start to build a stake in a leading multinational such as Diageo or Unilever, with a view to a takeover within the next few years.

[Tara]

Moderator Message:
Given that this has nothing to do with company news, one can only speculate as to why it was considered appropriate in the first place to put it there, and then waste moderators' time moving it... -- MDW1954

Given the decline of cigarettes and the as yet unknown safety and profitability of so called Next Generation Products, would it not be better for BATS to try to start to diversify completely away from tobacco in to some other industry?

For example Altria has a big investment in AB InBev. Would it not be a better future strategy for BATS to make a big investment in a company like Diageo for example? Or perhaps a big investment in a large retailer like Tesco or Sainsbury?

No need to speculate. I did not know that discussions such as this were not allowed on the other board. I will sit on the naughty step for approximately ten minutes.

[WickedLester]

What's wrong with managed decline? They can either spend cash buying businesses in different industries which may or may not prove a success or simply pay out the cash to their shareholders and let them decide what to do with it themselves.

Well given the decline of cigarettes, and given enough years, the market for tobacco companies like BATS will eventually disappear in most countries and there is no guarantee or even any evidence yet that Next Generation Products will prove to be profitable or safe. These tobacco companies may eventually just decline and disappear and that is not a very promising future for a company or for its stakeholders.

Would it not be better to start to diversify now into other sectors so that the company will have a successful future? For example they could perhaps start to build a stake in a leading multinational such as Diageo or Unilever, with a view to a takeover within the next few years.

The point I am making Tara is that I don't see much difference in shareholders milking companies in declining industries for cash which they can then invest in industries with a more secure future. You're suggesting that the tobacco companies do it for them but then you wouldn't have any choice in where your money was invested and any takeovers would probably be at a premium without any synergies to make it worthwhile.

[simoan]

What's wrong with managed decline? They can either spend cash buying businesses in different industries which may or may not prove a success or simply pay out the cash to their shareholders and let them decide what to do with it themselves.

Well given the decline of cigarettes, and given enough years, the market for tobacco companies like BATS will eventually disappear in most countries and there is no guarantee or even any evidence yet that Next Generation Products will prove to be profitable or safe. These tobacco companies may eventually just decline and disappear and that is not a very promising future for a company or for its stakeholders.

Would it not be better to start to diversify now into other sectors so that the company will have a successful future? For example they could perhaps start to build a stake in a leading multinational such as Diageo or Unilever, with a view to a takeover within the next few years.

You're missing the bigger picture here. It is perfectly possible for volumes to decline but for revenues and profits to increase. As an investor that is all that matters. And that is what is predicted for BATS for the next few years. In fact, EPS growth is predicted to be 16% this year. Beyond that, who knows what will happen, but given that BATS already has an incredible amount of debt, the idea that it could just go out and buy large chunks of other FTSE100 companies is a bit stupid, to be frank. Have you looked at the balance sheet? In a world of increasing interest rates the company simply does not have the means to raise the finance needed even if it stopped paying the dividend. Existing net debt is 3.3x EBITDA. That's very high by most standards.

Even given the debt load, it is so cash generative that I am quite attracted to BATS here. It still has operating margins of 38%, a stonking free cash flow yield of 16%, and if it can continue paying out the dividend for the next 10 years I just about get my investment back buying at ~£29.

[Tara]

Well given the decline of cigarettes, and given enough years, the market for tobacco companies like BATS will eventually disappear in most countries and there is no guarantee or even any evidence yet that Next Generation Products will prove to be profitable or safe. These tobacco companies may eventually just decline and disappear and that is not a very promising future for a company or for its stakeholders.

Would it not be better to start to diversify now into other sectors so that the company will have a successful future? For example they could perhaps start to build a stake in a leading multinational such as Diageo or Unilever, with a view to a takeover within the next few years.

The point I am making Tara is that I don't see much difference in shareholders milking companies in declining industries for cash which they can then invest in industries with a more secure future. You're suggesting that the tobacco companies do it for them but then you wouldn't have any choice in where your money was invested and any takeovers would probably be at a premium without any synergies to make it worthwhile.

There is nothing wrong of course with a managed decline, but there is also nothing wrong with a gradual diversification in to other growth sectors that are not facing decline. They are just different strategies. I suppose it just depends on the CEO at any particular time. The next CEO, whenever that may be, may decide for example that it would be a better strategy to have a stake in another growth sector, as Altria have now with their investment with AB InBev.

Investments in other proven and profitable growth sectors will also ensure that BATS as a company has a much longer future. Many stakeholders in the company would see this as a good thing.