Philip Morris (PM) was separated from Altria in 2008 for the separation of the domestic tobacco business (Altria) from the international. Philip Morris operates in four major markets: Europe, Eastern Europe / Africa / Middle East (EEAM), Latin America / Canada (LAC) and Asia. The European market is shrinking, especially in areas struck by the debt crisis. EEAM and LAC (Mexico down to Argentina and Canada and up) have been relatively stagnant.
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However, when we go to Asia, we come to one of our catalysts:
Business in Asia net between Asia grew by more than 10% last year and nearly 25% a year earlier. Operating income grew by 60% and 25% in 2011 and 2010, respectively. Growth in this area is particularly useful because the basic costs of the company's experience of excise taxes on cigarettes. Although it is difficult to determine what actually an excise tax is, excise taxes are 68.7%, 54.7% and 65.5% of net revenue in Europe, EEAM and LAC, while in Asia, only 45.4% of net revenue. Thus, the company may have a stagnant volume, but also increase profits, if there is a tendency to increase business in Asia continues. I think it will grow into 2 main reasons: the debt crisis has not hit the Asian markets, as is the European markets, which led to a reduction, and more importantly, the Prime Minister has not reached the market penetration it has in the other three markets, and therefore, there is still room to grow.
This increase in margin is complemented by the changing tastes of consumers and the pricing of Marlborough. Marlboro brand is the flagship of the PM. This is premium cigarettes. The Prime Minister also offers low prices and average prices of cigarettes.
This leads us to the second catalyst:
Two. Improved Mix and Price Meals - Marlborough remained steady growth of about 1% by volume of international over the past year. However, the biggest producers in the past year was Parliament (Premium 12,1%), Skylark (Lead International, 17,5%). Despite the shaky economic climate, he is improving, which should help this force. In addition, cigarette in many places is still a status symbol to ensure the more reason to trade. This may help the ability of the Prime Minister to raise prices in the form of taxes are higher because cigarettes are relatively inelastic. The combination of these elements is illustrated by the fact that the positive elements, which are summed up to $ 1.10 in EPS growth to reduce the negative elements of up to $ 0.93, $ 0.62 a positive growth was generated by combining the capabilities of the Prime Minister, to sell all cigarettes high prices and sell a large share of premium cigarettes.
Coming out of recession, Prime Minister continued to increase cash flow from operations of $ 7.88B 9.44B to $ 10.53B, and $ 2009 to 2011. In 2011, they used $ 4.8B in dividends (at present brings 3.61%) and about $ 5.3 B to repurchase shares. Dividends can be used as a catalyst, because they consistently increased their dividends, so that the payments constitute about 50% of net profit. They plan to use $ 6B to buy back shares this year, which will have the effect of raising the cost and increase EPS. At the same time, it means confidence in the company's value. They will continue to make money based on their ability to increase net profit. This is confirmed by a catalyst, as well as a commitment of the Prime Minister to reduce costs. They pledged to cut costs $ 250 last year and were able to do this; they made the same promise this year. Their strong cash generation also allows them to service their debt, which are uniformly spaced in the coming years can be financed at lower and lower rates of the creditworthiness of the Prime Minister.
There's definitely a risk to the thesis. The poor economic climate will be hurt as the amount and combination of digits in the PM, but adverse economic conditions will affect all companies. The great danger comes in the form of legislation of the country. This could include bans on smoking in public places warning labels on packaging and packaging makes all the cigarettes are identical. The last two are most important. Warning labels may make cigarettes less attractive, while an identical package excludes perhaps the biggest asset of the Prime Minister, his trademark in the form of Marlborough, and others. It can also be added to the effect of making a fake lighter which is also a serious problem for the evening. However, this is where the PM is better to play than any other cigarette manufacturers. PM doing business in areas where smoking is generally more widely accepted and legislation is not as hard on manufacturers of tobacco products. In addition, Prime has extensive experience in lobbying to prevent any major changes that significantly affect the business in the short term.
Currency is another risk. They were some fluctuations in income due to the currency and the further strengthening of the dollar in light of the problems of sovereign debt is not profitable. However, they are hedging makes these movements are relatively small in the overall picture. Fraud risk of litigation. Since 1995, there were 376 cases against PM; only 10 resulted in a victory for the plaintiff, and six of them were successfully appealed.
Philip Morris is trading at a slight premium to its competitors; I think this award more than worth it. I see this company in addition to the above-mentioned catalysts have a strong company with a relatively limited downside risk, a strong dividend, as well as the impact of inelastic consumers of their portfolio. Enditem
