Thursday, 15 October 2015

Philip Morris International does it again

Having noted last month (link here) that 'Philip Morris International shares should be c. US$90 each in my view. In the meantime I will continue to pick up the near 5% yield and wait...' I was really pleased with today's numbers from the tobacco giant.

A few key thoughts.  First whilst the Russian ruble among other currencies pulled down the negative FX elements the uplift in underlying guidance reflects continued very solid corporate progress...

 ...and funnily enough (in a recurring sub-theme) pricing remained very strong...

 ...assisted by continued solid market share in their key brand Marlboro:

Share rose around the world except Japan ('below our expectations' - they are attempting to counter this through 'investment in innovations') and progress was noticeably good in the Philippines (historically hit by excise duty problems) and despite the difficult economic environment Indonesia and Russia (in the latter a 5% price rise has been pushed through).

Otherwise a couple of dates for their 'reduced risk product' IQOS are worth noting over the next nine months or so (for more on IQOS see the earlier link where I wrote about it a little more).  Kind of important for a 'reduced risk product' to show this:

Interesting that satisfaction levels for the IQOS product over time is akin to those of cigarettes.  I guess that is good...

Otherwise yield remains high in both absolute and relative terms (and is covered by free cash - of course let us not forget that net debt is just over x2 ebitda too):

Putting it all together the company is currently trading on around x13.1 EV/ebit FY15e which feels too low.  Put it on a x14 forward valuation (appropriate for a yield heavy consumer company with good pricing power) and roll the numbers forward for 2016 and this suggests something around a US$95 share price target.  And if the US dollar falls all those overseas earnings may justify US$100+. 

In short a buy if you don't own it, a very strong hold if you do.  And there is yield.  Still a core stock for me.  

1 comment:

  1. Are you paying over $5 / pack of cigs? I'm buying my cigs at Duty Free Depot and I save over 70%.