Lupo di mare
28 Jul 2017
Re: Why the fall... I don't hold any baccy shares, BUT I do have shares in PLI, KIT and MYI who all have exposure to baccy companies, especially PLI and KIT. Then there's pension schemes...
Lupo di mare
28 Jul 2017
Why the fall... (Reuters) - The U.S. Food and Drug Administration aims to reduce nicotine levels in cigarettes while exploring measures to shift smokers towards e-cigarettes in a major new regulatory program announced by FDA Commissioner Scott Gottlieb on Friday that sent combustible cigarette company stocks plunging.The FDA said it would extend the timeline for newly regulated products, including e-cigarettes, to submit applications for approval and allow existing products that were on the market as of Aug. 8, 2016 to remain on the market, a boon for e-cigarette manufacturers.
Bill1703
20 Jul 2017
Re: Director "Bill it look like this guy is on your page... Perhaps he smells a bid coming, maybe I should bail and pump the lot into IMB" Yes, had already posted it on the IMB board... pretty punchy, and way beyond what would be considered reasonable for a run-of-the-mill show of faith by a non-exec.He definitely thinks they are cheap (clue - they are!)... hopefully he smells a bid coming rather than KNOWS a bid as coming, or he will likely need that cash to hire very good lawyers indeed!As for bailing from BAT... depends how greedy you are?! Always hard to call the top...
gamesinvestor
20 Jul 2017
Director Bill it look like this guy is on your page :-19-Jul-17 Imperial Brands IMB Langelier,Simon 24,100 @ 34.47p £830,665.89Non - EXEC [link] he smells a bid coming, maybe I should bail and pump the lot into IMB Games
gamesinvestor
20 Jul 2017
UP UP and AWAY In my....... [link] -- smokin!!
gamesinvestor
20 Jul 2017
Re: Woody out of BATS... part 2 ""Buy some more IMB... and leave the chasing of BAT ever higher to others!""Bill I'm stuffed to the gunnels with IMB already. I could always follow some of Woody's tips couldn't I?Drax; Allied Minds; North West Biotherapeutics; Circassia; Capita; Game Digital.........I'm spoilt for choice -- lol !!!Games -- there's a price to be paid for investing in "any old rubbish" as Terry Smith states!
Bill1703
20 Jul 2017
Re: Woody out of BATS... part 2 "Bill -- It's up another 1.89% as as I type -- and has been rising over the last week... It's also rising faster than IMB which is what we might not have expected."Yes, so I see - but maybe not so unexpected. Remember what phase we are in at the moment... very much a "momentum" market, where - by and large - we have multiple expansion, the pricey stocks getting even dearer, and the cheap stocks just getting cheaper.It's a familiar enough cycle, and always ends the same way... momentum gives way to "value", and we get mean reversion of valuations - to a lesser or greater extent. Before the whole cycle turns once more...But as to when this cycle turns - and from where - is much harder to know! So not sure what I would do as a trader right now... but as ever, much more comfortable with what to do as a (reasonably) long term investor. Buy some more IMB... and leave the chasing of BAT ever higher to others!
gamesinvestor
20 Jul 2017
Re: Woody out of BATS... part 2 ""FWIW BAT would definitely be expensive at £60 or even £58, and hard to see it getting there any time soon""Bill -- It's up another 1.89% as as I type -- and has been rising over the last week.Woody has left some cash on the table here.It's also rising faster than IMB which is what we might not have expected.I've revised my target for selling BAT from £60 to £59.95 -- as I don't want to appear too greedy and leave some for the next man as they say - lol !!Games
Bill1703
19 Jul 2017
Re: Woody out of BATS... part 2 "It's a large amount of guesswork at the end of the day... I'm guessing I'll be selling BAT at close to £60... I'll be holding IMB a bit longer but not much above £40"Perhaps of interest - the current 'consensus' price target from 15 brokers for BAT is £58 - and £41.50 for IMB (from 17 brokers).So they would seem to agree - over twice as much upside in IMB as in BAT! And the brokers are guessing too, just like us! Plus you have to factor in their habitual bias towards the bullish end of reasonable... but still, allowing for this, a similar picture to your own instincts?FWIW BAT would definitely be expensive at £60 or even £58, and hard to see it getting there any time soon - unless we have another major lurch down in GBP? In contrast, £41.50 looks a lot more reasonable for IMB, although still a tad optimistic IMHO... I'm with you, £40 looks about enough for now.Unless we do get that bid! And if we do - at what price? £45 minimum, then pushing nearer £50?? But you have to say, they are taking their time, those (long-mooted) bidders...
gravy
19 Jul 2017
Re: Woody out of BATS... part 2 This is impressive analysis from Bill 1703 - certainly helps me and I'm more comfortable with my IMB holding as a result. Many thanks.
gamesinvestor
19 Jul 2017
Re: Woody out of BATS... part 2 Bill -- It's a large amount of guesswork at the end of the day.I'm guessing I'll be selling BAT at close to £60I'll be holding IMB a bit longer but not much above £40Games
Bill1703
19 Jul 2017
Re: Woody out of BATS... part 2 "Well it's not misleading as the measurements are treated in the same way for both companies."Well, the calculations for ROCE might be the same, but the underlying asset figures can be stated on VERY different bases, even for similar companies - accounting rules allow a huge amount of latitude in how and when asset values are written down (which happens quite a lot), written UP (in practice, very rarely happens). So for any two companies, there can be HUGE differences in the age of asset bases, to what extent they have been depreciated, etc... and a lot also depends on relative acquisitive histories. It would take a true forensic account to get to the bottom of all this... but as I say, there is a clue when you compare P/NAV valuations. I merely repeat my warning to all investors - be very careful with "reported" ROCE data! A high ROCE might well indicate a high-quality, efficient and successful business - or it might just reflect an artificially low, historic-cost written-down asset base. Or somewhere in between... I can think of a whole series of stocks which have come a cropper while still reporting, on the face of it, very impressive ROCE figures, relative to WACC, etc. Capita and Next are only two, very recent examples... ".... this is somewhat compensated by the fact that IMB's debt is almost twice for the size of the business. It will become a problem if interest rates rise as this will eat into the fixed rate cover and free cash flow at a faster rate than BAT... On dividends yes there is a discrepency ... But as BAT is set to grow it's business faster in the next two years I'm assuming the cash flow cover differential will shrink somewhat."Moving on... yes, IMB has higher relative debt, and you can argue for some kind of (modest) premium for BAT on this alone. But I wouldn't make too much of this, given the relative reliability and predictability of defensive cashflows... and interest rates don't look to be rising any time soon!And yes, BAT's higher growth for the next 2 years (IF delivered!) will shrink the dividend cover differential... but there will still be a sizeable gap at the end of the period.We could go on... but the bottom line remains - yes, you can justify some kind of valuation premium for BAT vs IMB for a number of reasons... BUT I think the current premium is materially too high. I see IMB as around 15% undervalued relative to BAT... BAT may not be a SELL up here, possibly more like a weak HOLD for me - but IMB remains a BUY at these levels! With or without a take-over (which, obviously, would be nice...!)"... I dumped DGE yesterday and bought a shed load more of IG Group and this went up a modest 16.4% today, so it's time to get the fizzy stuff popping tonight.... when you get time maybe we can beat the hxll out of Alliance Pharma - see what you think -- cheers old dude!!"Good work on IG, I've been meaning to look at it as a "deep value" situation - but I have been wary of the regulatory backdrop, both current and potential future... Maybe still worth a look? There is a price for everything... And I will indeed have a glance at Alliance Pharma... doesn't sound like my kind of business, unless it's a real "value" situation, but I will do my best!
Bill1703
19 Jul 2017
Re: Woody out of BATS... part 1 "Bill the numbers are OK - the current P/E is 18.3 against current (2017) years growth expectation of 15% giving a PEG of 1.2... It's 2018 that the P/E drops to 16.9 (yes closer to 17) with an "estimated" growth of 8% or a PEG around 2... The respective figures for IMB are as stated at P/E = 12.2 - growth 8% - PEG 1.5 and for 2018 the figures are 12.2 growth 3% and PEG of 3.9"Games - your numbers are indeed more or less fine, but it's the PEG application I question. You compare a forward P/E against a growth rate which is already reflected in this forward rating - so there is double counting in there! Work through the maths and you will see what I mean.So, the BAT current yr growth estimate (15%) can only be compared to the PREVIOUS yr P/E (21.2x)... so a PEG of 1.4. Compared to IMB on (13.4x / 8%) on 1.7x. For next year, the figures are BAT 18.3x/8% = 2.3x PEG, and IMB 12.7x/3% = 4.2x PEG.My figures show growth of more like 5% rather than 3% for IMB next yr, which would bring down the PEG to only just above the equivalent BAT figure. And I repeat my usual health-warning on PEG ratios... they throw up some very misleading results in any one year, for many stocks - they only really have any mathematical authority if you use medium/long term sustainable growth rates, OR if growth in any one year is a reasonable guide to this sustainable future. So, the short-term PEG picture still favours BAT, but by a lesser degree. My point has always been - I wouldn't dispute some kind of premium rating for BAT currently, given this profile - but how much!!?? And to repeat, we have P/Es of 17x for BAT and 12x for IMB, on NEXT year's earnings - ie. AFTER these growth rates have already been included. So the question remains - will BAT's growth rates, medium to longer term, be sufficiently superior to justify this kind of rating differential?? I can only say, I have my doubts, for two intrinsically very similar businesses... but as you suggest, neither of us actually know... "The historical numbers over 5 years shows BAT has been far superior -- the future, who knows - I can only see the past right now."... but the historical picture I do challenge. Over 5 years to last FY, BAT's CAGR in underlying EPS is 4.9%... IMB shows 5.8% CAGR over the same period. On FY dividends, BAT has 5yr CAGR of 6.0% vs IMB on 10.3%!Obviously, you can pick and choose your periods, and things like FX can have a big distorting effect in any one period (both have benefited hugely from this in the last year)... but I am prepared to state with confidence, over your own 5 year period, IMB is actually better than BAT - rather than the latter being "far superior"! I will happily provide the underlying numbers for any clarification...(TO BE CONTINUED.. on next post, to keep things to manageable size!)
gamesinvestor
18 Jul 2017
Re: Woody out of BATS, still in IMB "I will, however, challenge how you put P/Es and growth data together... your "forward P/E of 16" for BAT (actually, I have 17.0x) already discounts this 15% growth this year "Bill the numbers are OK - the current P/E is 18.3 against current (2017) years growth expectation of 15% giving a PEG of 1.2.It's 2018 that the P/E drops to 16.9 (yes closer to 17) with an "estimated" growth of 8% or a PEG around 2.The respective figures for IMB are as stated at P/E = 12.2 - growth 8% - PEG 1.5 and for 2018 the figures are 12.2 growth 3% and PEG of 3.9For this period and under these similar measurements - BAT looks better."""" the question is, will longer term sustainable EPS growth FROM THERE be sufficiently superior for BAT""">> The historical numbers over 5 years shows BAT has been far superior -- the future, who knows - I can only see the past right now.""""On ROCE, I sound my usual note of caution... BAT is currently trading on nearly 12x NAV, against IMB on less than 6x. Which, I think, tells you all you need to know obout the 'historic-ness' of the misleadingly low asset base on which such high ROCEs are purportedly earned! """Well it's not misleading as the measurements are treated in the same way for both companies.Granted yes there is a big differential in terms of market valuation compared to net assets, but then there are hundreds of companies that trade on massive numbers compared to net assets and it's not really the measure most companies are lead by anymore given that companies are becoming less and less capital intensive. Also this is somewhat compensated by the fact that IMB's debt is almost twice for the size of the business. It will become a problem if interest rates rise as this will eat into the fixed rate cover and free cash flow at a faster rate than BAT.On dividends yes there is a discrepency but as you point out they are growing them at similar rates as the businesses allow and have similar cover with the exception of cash cover. But as BAT is set to grow it's business faster in the next two years I'm assuming the cash flow cover differential will shrink somewhat.At the moment I have 5.6% of my wad in IMB - I fully expect this to be acquired.BAT is about 1.9% so the risk (or relative risk) if your analysis proves valuable, is probably in the right ball park.Never mind - I dumped DGE yesterday and bought a shed load more of IG Group and this went up a modest 16.4% today, so it's time to get the fizzy stuff popping tonight.Games -- Bill when you get time maybe we can beat the hxll out of Alliance Pharma - see what you think -- cheers old dude!!
Bill1703
18 Jul 2017
Re: Woody out of BATS, still in IMB "Today BAT has a P/E at 18 and falling to 16 next year with a growth rate of 15% and 8 % respectively. This is largely due to successful cost cutting and focus on premium brands. This is set to continue as the number of players in the ciggy industry shrinks.... Also, had I not been of the view that IMB is a takeover target I'd say BAT at a forward P/E of 16 and a growth expectation in earnings of 15% this year is better than IMB at 12.2 and 3% respectively."Games - I won't challenge your earnings figures (historic and forecast), they look pretty much the same as mine - I have slightly higher EPS for IMB next year (ie. 2nd forecast year), but that is splitting hairs!I will, however, challenge how you put P/Es and growth data together... your "forward P/E of 16" for BAT (actually, I have 17.0x) already discounts this 15% growth this year (and FWIW next year's growth too), obviously. So, let's assume the current EPS forecasts are at least roughly right... two years out, you have BAT on 17.0x and IMB 12.2x - the question is, will longer term sustainable EPS growth FROM THERE be sufficiently superior for BAT to justify a fairly whopping premium rating? Highly doubtful to me... bearing in mind, inter alia, that BAT's faster growth this year is in large part down to the bump-up from the Reynolds take over. "BAT has ... an ROCE of a handsome 40+. Also the dividend has better cover now than it did in 2012."On ROCE, I sound my usual note of caution... BAT is currently trading on nearly 12x NAV, against IMB on less than 6x. Which, I think, tells you all you need to know obout the 'historic-ness' of the misleadingly low asset base on which such high ROCEs are purportedly earned! On dividends, BAT is yielding 3.2% (3.5% prospective current FY) vs IMB on 4.5% (5.0% prosp)... yet projected growth looks very similar (actually IMB slightly ahead of BAT for next 2 yrs - they both grew DPS 10% last year). Again, this is too much of a yield discount for BAT... actual EPS cover is similar (1.5x BAT vs 1.6x IMB), and while BAT's may improve marginally compared to IMB going forward, the discrepancy on FCF cover (1.1x BAT vs 1.6x IMB) is much wider.And staying on FCF... IMB's current FCF yields of 7.4% and 6.5% (last 2 yrs) stand out starkly against BAT (3.5% and 3.8%) - as they do against most peer group comparators! I should add, for completeness, I am not disputing your point that IMB is more highly geared than BAT (3.4x ND/EBITDA vs 2.4x for BAT) - but I don't see this as an issue of any immediate concern, particularly with IMB's FCF profile (and interest cover is perfectly comfortable around 7x). "BAT looks far from fagged out in my view but I guess only time will tell."So overall, I don't think BAT looks too pricey in isolation - and certainly not compared to some other consumer large-caps (ULVR, DGE, RB etc). But the valuation premium vs IMB does look excessive on pretty much every key metric. BAT may well be not far off 'fair value' (probably a bit above, for me, but open to debate)... but all the evidence points to IMB being something around 15% undervalued, if not a bit more, in both relative and absolute terms.
