Wednesday, 16 September 2015

What Altria shareholders should be thinking about the potential bid for SABMiller

Last week I observed after the 'Back to school' Barclays conference presentation by Altria that:

'I remain an Altria holder especially as I believe it should be helped by any current 'navel-gazing' at Reynolds/Lorillard as they bed down their merger'

All Altria holders should get a bump today because its 28% ownership in the global brewer SABMiller is worth just a little more than this time yesterday thanks to a potential bid approach by AB-InBev (link here).

So how do the numbers potentially change?

Way back in October 2013 I wrote a posting which appraised tobacco and beer segment worth which you can read here.

If we update the numbers for today the current c. US$8.5bn of ebit is covering US$115bn of EV putting the company on a firm sounding mid x13s EV/ebit multiple.

But...think about the current SABMiller stake value.  Today's 20% bump in the share price increases the value of the Altria stake to just over US$25bn.  As I did back in October 2013 take off a 20% haircut for taxes and the like and this gives a worth of US$20bn.  Deduct this in turn from the Altria EV and you get for the latter a value of c. US$95bn...which in turn puts the 'stub' tobacco-centric business at just over x11.1 EV/ebit.

For a business which gave such a solid update at the conference last week (as noted at the link above) that is absolutely fine.  If you can buy it at less than x10 implied then you should.  That would suggest looking below the US$50 level.

Of course...SABMiller may or may not be bid for.  I do observe that even after today's 20% pop, SABMiller shares have underperformed those of AB-InBev (Belgian euro quote shown here). This has been a long-mooted deal but with disposals it is very do-able.


For my own Altria holding I am sitting tight.  Add below US$50, sell some above US$60 feels about right to me.  

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