Investing in fags, vapes and hash

[TheMotorcycleBoy]

I'm pretty neutral on the above, but decided to cut some of our Imperial Brands (IMB) after recent events regarding the durability of their NGP business. I've been googling recently on the various sites trying to form a view on the long term of this market.

Haven't come to any conclusions, and haven't read the article I'm linking below properly, but I thought I'd create a new thread to link it:

https://www.bloomberg.com/news/articles ... alth-scare

..and any other thoughts and ideas rather than further derailing the Company News:IMB thread.

Opinions welcome,
Matt

[Dod101]

No one took me up on it, but I think a company such as Imperial Brands ought to split off the vaping etc new developments and leave itself as a purely tobacco company, running itself down over what may well prove to be decades. I would imagine that they must have fairly clear guidelines internally but if they set up two independent PLCs then the market would know that the tobacco company was a cash cow and a stable one at that which might hopefully encourage a better share price, based on the yield of the shares rather than the success or otherwise of its vaping etc products.

The vaping etc company would be seen for what it is; a start up and it needs a completely different mind set.

I would invest in the tobacco company but not the vaping one I think.

Dod

[gbjbaanb]

don't go near it at all is my investment opinion.

I read about biopsies taken from vapers, the doctors said the lung tissue looked exactly the same as those who'd inhaled chemical weapons. (mustard gas was mentioned!)

I reckon there's a lot more medical information to come out now they've started looking, and then in the future - lawsuits for mis-selling vape product as "safe" or even "safer than cigarettes" which is looking like it might not be objectively true.

[TheMotorcycleBoy]

IMB (and possibly other tobaccos) have also started to explore hash:

Imperial Brands, maker of Davidoff and Gauloises cigarettes, has made its biggest investment yet in the cannabis sector with a £75m deal to take a stake in Canadian company Auxly Cannabis Group.

The deal, announced on Thursday, allows Imperial to convert a £75m debenture into a 20 per cent stake in Auxly over three years. It gives the tobacco giant positions on the cannabis company’s board in return for offering Auxly access to its vaping technology business, Nerudia.

The legal cannabis market in Canada is estimated to be worth $6bn, according to Ernst & Young, and is forecast to increase to $11bn by 2025 following regulation due in October this year to legalise edible cannabis products, as well as cannabis oils, lotions and vaping.
https://www.ft.com/content/17531c3e-aee ... 0adfa879c2

Tobacco firm Imperial Brands is investing in UK biotech company Oxford Cannabinoid Technologies (OCT).
The move comes as campaigning to allow marijuana products for medicinal purposes gathers pace.
A company subsidiary, Imperial Brands Ventures, is taking a stake in the UK firm, but its size is unknown.
Tobacco companies are trying to diversify away from their core product. Imperial's website bears the motto: "From tobacco to something better."
Imperial now sees itself as "a dynamic fast-moving consumer goods company borne out of a strong tobacco heritage".
OCT is a firm licensed by the UK Home Office that researches, develops and licenses cannabinoid-based compounds and therapies.
Imperial Brands' chief development officer, Matthew Phillips, said: "Our investment enables Imperial to support OCT's important research while building a deeper understanding of the medical cannabis market."
https://www.bbc.co.uk/news/business-44645569

But is this 1) too little too late, 2) high risk since we do have rumours of concern into the bad psychiatric side-effects of cannabis usage?

[PrefInvestor]

Hi Matt, I'm not really an ethical investor but I have (and will continue to) avoid investing in cigarettes or any of these new vaping developments. I think its a disgusting habit and I wouldnt want to provide ANY support to the industry whatsoever. What with the risk of cancer and these new vaping lung problems that people are having, why would you invest in that ?.

ATB

Pref

[TheMotorcycleBoy]

Hi Matt, I'm not really an ethical investor but I have (and will continue to) avoid investing in cigarettes or any of these new vaping developments. I think its a disgusting habit and I wouldnt want to provide ANY support to the industry whatsoever. What with the risk of cancer and these new vaping lung problems that people are having, why would you invest in that ?.

ATB

Pref

Hi Pref,

I have my own set of ethics. I am teetotal, I stopped (heavy) drinking 17 years back when I realised my first (who was 1 at the time) kid didn't deserve to have a father who was half cut most evenings, and hung-over most weekends. I gave up fags about 26 years ago after smoking since I was 13 (I just woke up one day I decided I was stick of smelling of fags and having yellow stained fingers). It's my view that if people wish to purchase products which truncate their lifetimes, that's entirely their choice, and I make my decision to enter or not investments into producers of those on an entirely financial basis. (My main problem with such self-destructive behaviours concerns the expenditure by the NHS in keeping those individuals alive to be honest, but that's another discussion for another board!)

...

Anyway, I know we have many members on this forum, with investments in IMB and BATS, and quite possibly other firms with similar marketplaces. So I'm curious, ethics aside, on how they are weighing up current developments re. vaping, humanity's sometimes addictive personality, and the emerging marketplace of recreational and medicinal cannabis.

Matt

[tjh290633]

Anyway, I know we have many members on this forum, with investments in IMB and BATS, and quite possibly other firms with similar marketplaces. So I'm curious, ethics aside, on how they are weighing up current developments re. vaping, humanity's sometimes addictive personality, and the emerging marketplace of recreational and medicinal cannabis.

Matt

I hold both and consider them as companies in the throes of evolution. Sentiment is against them at the moment, but that makes them more open to purchase with a sensible yield. IMB at over 10% has a ridiculous yield for a company which is not on the threshold of going bust. Maybe there is a health problem with NSM. Time will tell, but we also have the interests in medicinal cannabis derivatives, which could prove very rewarding.

TJH

[Dod101]

Hi Matt, I'm not really an ethical investor but I have (and will continue to) avoid investing in cigarettes or any of these new vaping developments. I think its a disgusting habit and I wouldnt want to provide ANY support to the industry whatsoever. What with the risk of cancer and these new vaping lung problems that people are having, why would you invest in that ?.

ATB

Pref

Only for the dividend.

Dod

[monabri]

How much of the issues with the NGPs are due to purchasing of unregulated e-liquids from corner shop dealers and the internet? BATS have said that this is an issue.

Of course, it is in the interests of big Tobacco to own all aspects of NGPs - they don't want to lose control of the "nicotine delivery system" to Amazon & eBay.

By the way, I thought that in the UK, the tax raised on tobacco/smoking outweighed the costs to the NHS... or is that a fallacy? In addition, the UK government needs to stamp on illegal imports of cigarettes etc being sold from vans on pub car parks on Friday afternoons - they are losing tax revenue. How much are the sales of legally sold cigarettes decreasing because the smokers are obtaining them otherwise?

[dspp]

In my day job I work quite closely with a partner company. The partner company is a $bn group. Up until 5-years ago maybe 80% of their exposure was as a tier 1 supplier to the tobacco industry. They are one of only two full-spectrum suppliers to the tobacco majors in their area, which is critical to the tobacco supply chain.

Over the last 5-years they have done two things:
1) Diversified hugely, to the extent that now they are only 50% exposed to tobacco. (I am involved in this non-tobacco bit).
2) Diversified within tobacco, to support a) alternative delivery systems, b) reduced harm traditional delivery systems.

The people running my partners are high calibre & make rational decisions This tells me that they expect continued tobacco decline, and they are unsure whether that will be terminal or may perhaps include alternative delivery systems. Overall their investments have been pretty heavily skewed to be away from tobacco, but they are also positioning for simultaneous end game harvesting. When rational insiders are making these calls it is a brave decision to skew personal investments towards tobacco.

I have no particular insight into marijuana as an investment alternative, so no great opinion on that. Other than that, as I am sure anybody who knows youngsters will confirm, that it is as easy to grow as tomato plants and very cheap to buy already in the UK. Which means it will be hard to make into a large industry. Mind you I can say the same about home brew beer, and that is a large commercial industry.

regards, dspp

[PrefInvestor]

Hi Matt, I'm not really an ethical investor but I have (and will continue to) avoid investing in cigarettes or any of these new vaping developments. I think its a disgusting habit and I wouldnt want to provide ANY support to the industry whatsoever. What with the risk of cancer and these new vaping lung problems that people are having, why would you invest in that ?.

ATB

Pref

Only for the dividend.

Dod

Not close to making up for the capital losses on these stocks over the last few years though is it.....even with the 10%+ IMB dividend. IMB share price was ~4000 on 1/8/2016, 1820 at fridays close. BATS were 5530 on 1/5/2017, 2800 at fridays close. They are turning capital into income and losing a fair bit more on the way. Wouldn’t invest there even if I did like the company’s products.

Pref

[Dod101]

I agree Pref. If I had known where the share price was going to go I would have sold at the peak. As it is, although I along with others have missed that I, at least, am still well on the right side with both of the tobaccos having bought them both a long time ago. In fact my still significant holding in Imperial is all for free, having taken out much more than my original buying price quite a long while ago. I think I only bought BAT around 2000 so again I am well on the right side.

It does not detract though from the fact that they have pretty well halved in value over the last two or three years and as always, timing is everything.

Dod

[PrefInvestor]

I agree Pref. If I had known where the share price was going to go I would have sold at the peak. As it is, although I along with others have missed that I, at least, am still well on the right side with both of the tobaccos having bought them both a long time ago. In fact my still significant holding in Imperial is all for free, having taken out much more than my original buying price quite a long while ago. I think I only bought BAT around 2000 so again I am well on the right side.

It does not detract though from the fact that they have pretty well halved in value over the last two or three years and as always, timing is everything.

Dod

Indeed Dod, A total return chart for the last 3 years looks as follows:-



If you had £10,000 invested in IMB at the start of those 3 years by now you'd have £4,550 plus say £300 worth of dividends, giving you a total of £4,850 - just over a £5,000 loss. Similar story if not quite so bad for BATS. You could say the money had just gone up in smoke.......poetic licence ?.

Yes if you've held them long term then I guess it doesnt look so bad, but surely people cant deny the major loss over the last 3 years (clearly you are keenly aware of it). Surely sentiment is just deteriorating for the cigarette companies ?, publicity is just dire - but then theres the third world I guess. Personally I'd be in favour of government slapping some more tax on....

ATB

Pref

[Itsallaguess]

If you had £10,000 invested in IMB at the start of those 3 years by now you'd have £4,550 plus say £300 worth of dividends, giving you a total of £4,850 - just over a £5,000 loss. Similar story if not quite so bad for BATS.

You could say the money had just gone up in smoke...

We could also say that might perhaps be selecting the single worst holding period for both stocks, and ask how likely it might be that this is the case for most investors?

So, for instance, if we look at the 5-year chart, it gives a completely different set of returns, showing a loss of around 10% for IMB and BATS over the period -



Still not great, but nowhere near as bad as selectively just looking at the 3-year period...

Just adding for balance, of course...

Cheers,

Itsallaguess

[puffster]

If you had £10,000 invested in IMB at the start of those 3 years by now you'd have £4,550 plus say £300 worth of dividends, giving you a total of £4,850 - just over a £5,000 loss. Similar story if not quite so bad for BATS. You could say the money had just gone up in smoke.......poetic licence ?.

£300 of dividends? Surely £3000 at 10%?

Regards, Puffster

[PrefInvestor]

If you had £10,000 invested in IMB at the start of those 3 years by now you'd have £4,550 plus say £300 worth of dividends, giving you a total of £4,850 - just over a £5,000 loss. Similar story if not quite so bad for BATS. You could say the money had just gone up in smoke.......poetic licence ?.

£300 of dividends? Surely £3000 at 10%?

Regards, Puffster

Yes puffster you are correct, my error, with my 10% dividend assumption the figure should have been £7,850 after 3 years and a 12% loss. Wasnt sure why thats not reflected in the total return chart which at about a 50% loss generally agreed with my number, which is why I didnt check it more closely really. It was therefore clear that I needed to do a slightly deeper analysis / calculation.

So I went back and checked all dividend payments from 6th October to date on the IMB website and they add up to 529.27p.
Share price at the open on 6/10/2016 was 3955 so to have £10,000 invested you' would have needed 10000/39.55=252 shares.
So the 3 years worth of dividends would have been worth 252*5.2927=£1,333.76 much less than £3,000 I assumed, which no doubt accounts for the Total Return chart.
Capital + Dividend value over 3 years as of cob Friday = 252 * 18.23 + 1333.76 = £5,927,72 or a £4,073 loss in total return terms.

Not that much different to my original figure, but a bit better.

Apologies for the error. Hope Ive got it right this time !.

ATB

Pref

[Dod101]

If you had £10,000 invested in IMB at the start of those 3 years by now you'd have £4,550 plus say £300 worth of dividends, giving you a total of £4,850 - just over a £5,000 loss. Similar story if not quite so bad for BATS. You could say the money had just gone up in smoke.......poetic licence ?.

£300 of dividends? Surely £3000 at 10%?

Regards, Puffster

No. The shares have not been yielding anything like 10% for the last three years. In September 2016, one share in Imperial would have cost about £40. Since then dividends have totalled about £5 per share. Your £10,000 would have bought about 250 shares and thus your dividends since then would have totalled around £1,250. That is my calc anyway. I stand to be corrected but it means that today, these 250 shares would have a capital value of around £4,500, with divs over the period of say £1,250. Prefs has beaten me to it, but I will let this post stand.

OTOH Imps has been a wonderful investment. I do not mind sharing my numbers. In 1997 I spent £3,100 on my initial purchase, subscribed £1,377 to the rights issue in 2002, sold rights at the next fund raising in 2008 for £2,620 and in June 2015, sold the shares I bought in the first rights issue in 2002 for £9,600. That gave me my money back and lots more. Today, even at the current depressed price, my holding is worth £18,700. That is a good investment by any standards.

LTBH? Not a bad idea.

Dod

[PrefInvestor]

Still not great, but nowhere near as bad as selectively just looking at the 3-year period...

Just adding for balance, of course...

Cheers,

Itsallaguess

Hi itsallaguess, So up to Jan 2017 holders would have been very happy, but since then its been all downhill big time....with significant losses on their Jan 2017 portfolio valuation. If that was one of my investments I wouldnt be happy with that, but then I would likely have dumped it at no more than 10-15% off its high to protect against further losses (ie the situation that has actually happened).

I'd like to stress I bear no ill will to anyone holding these, I never like to see anyone losing money. People invest in them for the dividend income Im sure and up to a point I can understand that. As for the cigarette companies themselves as I've said, I will never invest there and if they arent doing well then I cant say that I'm sorry TBH.

ATB

Pref

[mc2fool]

Share price at the open on 6/10/2016 was 3955 so to have £10,000 invested you' would have needed 10000/39.55=252 shares.
So the 3 years worth of dividends would have been worth 252*5.2927=£1,333.76 much less than £3,000 I assumed, which no doubt accounts for the Total Return chart.
Capital + Dividend value over 3 years as of cob Friday = 252 * 18.23 + 1333.76 = £5,927,72 or a £4,073 loss in total return terms.

Not that much different to my original figure, but a bit better.

Apologies for the error. Hope Ive got it right this time !.

Nope!

At least, it depends on how you define total return. You've got a TR of -40.73% whereas your 3 year HL chart shows it as circa -46%, and the difference is 'cos you've counted dividends as cash in hand (i.e. withdrawn), whereas HL is showing the TR with dividends reinvested, and of course reinvested dividends become capital which, in this case, has been declining in value.

[PrefInvestor]

Today, even at the current depressed price, my holding is worth £18,700. That is a good investment by any standards.

LTBH? Not a bad idea.

Dod

Hi Dod, Yes but what was your holding worth 3 years ago say Oct 2016 ?. Substantially more I'm guessing.....

ATB

Pref