TOBACCO ROAD – EXPERTS’ UPDATE
Two audiences follow my posts. The first, people who grew up with a tobacco heritage or newcomers who want to learn more of its history and R.J. Reynolds’ story. The second, serious investors seeking background on the industry to put the current tobacco world in perspective. Some are individual investors. Others are professional analysts whose opinions count with people who have, or will invest, billions of dollars in tobacco stocks.
A dozen or more of these analysts have reached out to me. They have expanded my circle of contacts, and I hope, my friends around the world. Today’s post centers on the needs of the second group, the professionals, but I hope everyone can come along for the ‘ride’ and find something interesting here.
I completed my tobacco book research in mid-2017, as British American Tobacco was buying Reynolds American. This was a high-water mark for tobacco stocks. They have since suffered a steep decline. This chart shows financials for the five largest cigarette companies.
Four years ago, these companies had a combined market value of $664 billion with a dividend yield of 3.3% and a Price/Earnings ratio of 21. Today, those numbers are $393 billion market value, yield 6.9%, and a P/E of 15.5. At the same time, dividend dollars paid rose 25%.
Has a fundamental shift occurred in the industry? Or is this a temporary ‘blip’ in an ongoing success story? Are tobacco stocks a bargain? There are no easy answers. But I am sharing the opinions of two talented and knowledgeable analysts. You can see their full reports and insights by clicking the references below:
Lawrence Hamtil, a financial advisor in Overland Park Kansas, has a
report on the industry. He makes the case that tobacco stocks may be a haven in a world headed toward higher inflation.
Johnathan Fell, with Ash Park Capital in London, has been a tobacco analyst for nearly 30 years. In his presentation at the Global Forum on Nicotine Liverpool 2021, he discussed the worldwide tobacco business and its challenges and opportunities in a rapidly changing marketplace.
I add only two anecdotal comments to the fine work that they have done.
The term ‘nicotine delivery system’ now encompasses all tobacco products. My dear friend at RJR, Dr. Claude Teague, used this term in 1973 in an internal R&D report. Claude was a scientist, and the term’s negative implications never occurred to him; it was just a fact. RJR management ‘was not amused.’ Yet, people have now accepted that this is exactly what tobacco products are.
As analysts, consumers, and manufacturers struggle with the ethics of tobacco, will nicotine use eventually fade away? Perhaps. But if history is a guide, that day will be far and away. King James I wrote in 1604, tobacco is ‘A custom loathsome to the eye, hateful to the nose, harmful to the brain, dangerous to the lungs.’ Ten years later, despite the King’s opinion, tobacco was a major business in England, and James opted to tax it rather than try to outlaw it. 160 years later, another British royal - Queen Charlotte, wife of King George III - was so fond of sniffing powdered tobacco called ‘snuff,’ that “Snuffy Charlotte” became her nickname. (My current home city, along the edge of Tobacco Road is ironically named for her.)
A PERSONAL REQUEST
I continue to search for material that will interest readers, and if you have a topic you want to know about, contact me. And a final word – an appeal to you readers. I very much need to expand the distribution of these posts. Please think of friends and acquaintances who might like to follow along with us and let them know about this site and the book, Going Down Tobacco Road. I am grateful for your help.