Tuesday, 11 February 2014

Which smoke do you back: Altria and Reynolds American?

I have written positively (and bought stock in) both Altria and Philip Morris International over the last couple of weeks post their corporate results.  So are there any further insights from their tobacco sector peer Reynolds American who reported today?

Well the first key point is that Reynolds and Altria - with their US market only focus - are the key comparators here.  You can see this by how the two shares have performed over the last three years - an amazing correlation:

Looking at the Reynolds American numbers out today, the key excerpt was this one: solid single digit EPS growth in 2013 and an either side of 5% growth expectation in 2014 plus a 6.3% increase in the dividend.  All very solid.

How does these numbers compare to Altria?  As per my report from a couple of weeks ago the comparisons are as follows:

2013 growth:                                      RA +7.4%, Altria +7.7%
Dividend increase at end of FY13:    RA +6.3%, Altria +9%
2014 estimated growth:                     RA +3.5-8.2%, Altria +6-9%
Current dividend yield:                     RA 5.3%, Altria 5.6%
EV/ebit FY13A                                 RA x9, Altria x7

I also note that despite the 3 year share price chart showed above, over the last year Altria has underperformed Reynolds American by around 5%. 

Put all of this together and remaining long Altria of choice in the US-focused tobacco space makes sense to me. 

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