Friday, 30 January 2015

Altria - why I sold half my position

Three months ago, at the time of the last set of Altria quarterly numbers, I observed that:

'So back to that pesky valuation insight.  Given I top-sliced my SABMiller stake a month or so ago (link here) can I still be optimistic about Altria?  Using a similar methodology as employed here if I deduct a discounted valuation today of c. US$21.5bn from the Altria EV, the stub 'tobacco business' implied valuation is around US$85.5bn.  That put this part of the business on an EV/ebit profile of about x11.4.  Not terrible.  I can see the stub trading at x12 EV/ebit and hence pushing Altria shares to US$50 on a great day.  A single digit EV/ebit implied Altria tobacco stub valuation is around US$42.  A range worth remembering.  And you are still getting that dividend yield'

And what was the price of the Altria stock at the close yesterday (Thursday)?


It has been a 'great day' for much of the last month or so with Altria stock.  Did today's results justify this firm move?  Well the headlines looked solid enough for both historic 2014 and prospective 2015: 


A 7-9% EPS growth level when combined with the company's (despite the above significant share price appreciation) near 4% dividend yield will pique investor interest still.

But what about underlying business momentum?  I noted that many of the 'usual' trends continued with positive pricing and limited revenue growth (also the key brand Marlboro saw flat market share levels during the last quarter - no disaster but no real progress either).


So I find myself torn.  Altria against cash in the bank is clearly a great investment.  Within itself I think the stock is a little ahead of even a stretched reasonable valuation as detailed in my previous update linked above.  My conclusion for my pension fund holding that has fantastic gains: sell half now and if we see a sub US$50 share price then probably look to buy it back.  

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