Tobacco.org

FG Bans Fresh Investment in Tobacco  

The Federal Government may have banned fresh investments in the tobacco and allied industry. Smoking and the pervasive use of tobacco products is a risk factor for several diseases and has been increasing in many developing countries. In 2000, 4·83 million of premature deaths in the world were attributable to smoking with 2·41 million occuring in developing countries and 2·43 million in industrialised countries.

Executive Secretary and CEO of the Nigerian Investment Promotion Commission (NIPC), Mustafa Bello, made this disclosure at the just concluded 2nd Nigeria-Japan Business and Investment Forum, which took place in the cities of Osaka and Tokyo.

Bello, had in response to an inquiry from a prospective Japanese investor, said that the Federal Government in line with global efforts at stemming the use of tobacco products and isolating manufacturers of the product may not be well disposed to fresh investments in that sector.

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Smoking out profits from BAT shares 

For BAT-Kenya shareholders, however, smoke has meant one of the highest returns at the Nairobi Stock Exchange in the past one year, making a mockery of the bourse’s one-year bearish run.

The returns have been two-fold, in price appreciation and dividend pay-out. On January 21, for example, BAT shares were selling at Ksh137 ($1.75), but by June 24, the price had risen to Ksh170 ($2.2), an appreciation of Ksh43 (US 55 cents).

A shareholder who bought into the company on January 21 would, however, have made a bigger killing, given that BAT-Kenya paid a final dividend of Ksh12.50 (US 16 cents) on April 30.

Taken together, the price appreciation and dividend payout mean that the total gain per share for the investor would have been Ksh55.50 (US 71 cents) by last week, equivalent to a 41 per cent gain in investment in just four-and-a-half months. Globally, annual gains of around 10 per cent on capital are considered good.

The gains registered by the BAT stock far outstrip those made by the NSE over the last four weeks, when the bourse registered some recovery pressure.

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Fitch Takes Various Actions on California County TSA Series 2002 & 2006 Bonds (Stanislaus County) 

Fitch Ratings affirms four and downgrades one class of tobacco settlement asset-backed bonds from California County Tobacco Securitization Agency (Stanislaus County Tobacco Asset Securitization Authority) series 2002 and 2006, as follows: . . .

The various actions are based on the level of stress each class is able to withstand as indicated by Fitch's new breakeven cash flow model. The model indicates, for each class of bonds, the level of the annual Master Settlement Agreement (MSA) payment percent change the trust would be able to sustain and still pay the bond in full by the legal final date. The base case 'B' corresponds to a 1% increase in the MSA payment received by the trust every year. The 'BBB' category corresponds to an annual MSA payment decline of 1.25%. The cash flow model accounts for the amount of the latest reported MSA payment that the transaction has received, the capital structure, the reserve account, and the bonds' legal final dates.

The bond payments are also tied to the tobacco companies making MSA payments.

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Fitch Affirms Reynolds American's IDR at 'BBB-'; Outlook Stable 

-Fitch Ratings has affirmed the ratings of Reynolds American Inc. (NYSE: RAI) and R. J. Reynolds Tobacco Holdings, Inc., a wholly owned subsidiary of RAI, as follows: . . .

The affirmation reflects RAI's continued ability to generate substantial cash flow from operations due to its high operating margins, its significant levels of liquidity, and its prominent market position as the second largest U.S. tobacco company. The ratings further consider RAI's shareholder friendly high dividend payout ratio - currently at 75%. The company's losses in market share due to volume declines greater than industry average driven by outsize losses in non-growth brands are somewhat counterbalanced by the company's operational diversification attributable to its growing smokeless tobacco division Conwood. The company's ratings are lower than companies with similar credit profiles largely due to industry factors including continued and potentially accelerating volume declines and ongoing, albeit reduced, litigation risk.

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Fitch Takes Actions on Children's Trust Fund Tobacco Settlement Bonds Ser 2002, 2005 & 2008 

Fitch Ratings affirms 11 and downgrades two classes from Children's Trust Fund Tobacco Settlement (Puerto Rico) asset-backed bonds series 2002, 2005 and 2008, as follows:

Tobacco Settlement asset-backed bonds current interest serial bonds

--$11,315,000 due May 15, 2010 affirmed at 'BBB+'; Outlook Stable;

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Fitch Takes Various Actions on Michigan Tobacco Settlement Financing Authority, Series 2008 

Fitch Ratings affirms two and downgrades one class from Michigan Tobacco Settlement Financing Authority, tobacco settlement asset-backed bonds, series 2008, as follows:

--$114,860,000 series 2008A turbo current interest bonds due June 1, 2042 affirmed at 'BBB+'; Outlook Stable;

--$29,874,650 series 2008B taxable capital appreciation turbo term bonds due June 1, 2046 affirmed at 'BBB'; Outlook Negative;

--$57,673,814 series 2008C capital appreciation turbo term bonds due June 1, 2058 downgraded to 'BB' from 'BBB-'; Outlook Negative.

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Beat the Recession with Our Tobacco Picks  

We believe there is now a compelling case for buying Altria (MO), which we think has the most to gain from regulation under the Food and Drug Administration, and Philip Morris International (PM), whose strong product portfolio and pricing power should position it well for long-term growth.

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• Tobacco companies can help reignite your portfolio  

We think the worst-case scenario for the industry under FDA regulation would be a reduction in the amount of nicotine, the addictive component of cigarettes, being forced upon manufacturers. However, it is likely that industry stakeholders would pressure the FDA not to implement such a measure. Just as smokers are addicted to tobacco companies' products, governments are addicted to the tax revenue the products generate. We estimate that total excise tax and MSA payments will be well in excess of $40 billion in 2009, or around 1% of all local, state, and federal taxes collected, and around two thirds of all excise tax receipts. In the case of the MSA payments to states, the states have in many cases already securitized that revenue and therefore are heavily reliant on the payments being made.

The risk of litigation still lingers over the domestic tobacco industry, although it has subsided significantly in the past few years. We expect financial penalties to arise periodically, but we think damages will be manageable.

We think the downward pressure on tobacco stocks over the past 18 months has presented investors with an opportunity to buy the industry leaders. We think Altria has the widest moat in the industry, with a vast distribution network and collection of strong brands. . . .

Although we think Lorillard's Newport is a very strong brand, the firm's exposure to the menthol category is a concern to us, given the threat hanging over that sector. We expect Reynolds American to underperform the industry because it has an older core customer demographic and we expect it to discontinue some of its peripheral brands.

Emerging economies such as Eastern Europe, Africa, and parts of Asia still offer growth opportunities. . . .

We think the best way to exploit the growth opportunities in international tobacco markets is with an investment in the industry leader, Philip Morris. The firm owns Marlboro in international markets, the only true global brand . . .

We rate British American Tobacco similarly to Philip Morris: Both have wide economic moats, both have only a medium uncertainty rating, and their dividend yields are also closely matched, BAT at 4.5% and Philip Morris at 4.9%.

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Executive from Altria Group was on NPR today / Please think and don't invest in MO. 

This blog is in response to an interview on NPR this morning with a former executive Steve Parish of Phillip Morris (Now Altria).

In this interview with Mr. Parish, he talked about how Phillip Morris went from fighting the FDA, to supporting moving American tobacco industries under FDA regulation. Stating that its been an increasingly difficult environment for the companies to fight regulation, the most important thing to him and Phillip Morris was reducing the damage and deaths caused by smoking.

The interviewer failed to call him out on this statement, which is nothing but falsehoods.

If the tobacco companies really wanted to reduce deaths by smoking, they wouldn't go for incremental and slow regulations - they would simply close down their businesses. Their product causes cancer and death. . . .

Instead, these executives lie to the public and probably to themselves while receiving very nice compensations. In 2007, Mr. Parish received over $900,000 . . .

The truth about the FDA bill which recently passed is that it also directly limits market competition in the US from tobacco companies. While current tobacco companies that sell in the US are grandfathered in, no new tobacco companies will be allowed to sell in the US. . . .

It should be very clear that Altria/Phillip Morris is a company that has very detrimental effects on the world and society. Back when the recession started, many Fool members up-thumbed this corporation as a recession proof industry that is a great safe haven. I found this both disturbing and sad. These are not corporations that people should support, rather we should be working to end corporations such as this. When you or a family member dies of a smoking related disease - don't look back and have regrets that your money helped support this corporation.

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Boudreau defends pension plans' $21M investment in big tobacco  

Finance Minister Victor Boudreau said tobacco companies that are being sued by the province have proven to be strong investments for the New Brunswick Investment Management Corp. . . .

But Boudreau said on Tuesday when it comes to making money on the province's pension plans, it's important for investment managers to earn revenue any way they can.

"The New Brunswick Investment Management Corporation has a mandate of getting a maximum return on their investments so that our pension funds can continue to grow," he said.

The pension funds lost almost $2 billion in the markets last year, including on its tobacco stocks. But the finance minister said over the years the tobacco industry has proved to be a strong money maker.

The records released last week by the New Brunswick Investment Management Corp. show heavy investments in Imperial Tobacco, Rothmans, British American Tobacco, Philip Morris, its parent company Altria Group and R.J. Reynolds.

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N.B. pensions have $21M in tobacco companies  

The records released last week by the New Brunswick Investment Management Corp. show heavy investments in Imperial Tobacco, Rothmans, British American Tobacco, Philip Morris, its parent company Altria Group and R.J. Reynolds.

The provincial government agency that manages the pension funds of public servants, teachers and judges had holdings in those companies worth about $21.2 million on March 31, 2008.

Those same companies are all targets in a lawsuit launched in December 2006 by the province. . . .

"The optics of that aren't great," said Ellen Snider, a spokeswoman for the New Brunswick branch of the Canadian Cancer Society.

"I don't think the government has any choice but to take a close look at this and to consider the possibility that absolutely those [investments] have to be pulled."

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• No Doom: Industry's profits unlikely to suffer 

Analysts on both sides of the regulatory fence said that tighter regulation of the tobacco industry is not likely to produce a doom-and-gloom future for the industry.

But in the long term, they agree that the new regulatory standards passed yesterday by the U.S. Senate likely will cement Philip Morris USA's status at the top manufacturer, and that extra compliance costs will be passed on to smokers. . . .

"Given that today's tobacco products are grandfathered into the legislation, and tobacco products will continue to be sold in retail outlets, we do not expect any significant immediate effects on the sector," said Christopher Collins, an associate director at Fitch Ratings. . . .

R.J. Reynolds Tobacco Co. has had more than 10 years to consider the possibility that a bill like this would pass, spokeswoman Maura Payne said.

"Thus, we have spent considerable time analyzing how best we could comply with regulations like these, what we needed to do in our organization to prepare for compliance, and what we needed to do across all of our operating companies to ensure that all were successfully able to comply," she said.

Payne said that the rule-making process and establishment of the details surrounding the bill will take some time.

"We will participate to the degree that we are able to in that process, but, at the end of the day, we intend to continue to successfully compete for the business of adults who choose to use tobacco," she said.

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• Zacks Industry Outlook Highlights: Altria and Reynolds American 

Additional regulation of tobacco products by the U.S. Federal Government is now expected. . . .

The tobacco companies are losing product liability law suits. In late March 2006, the U.S. Supreme Court refused to hear an appeal in the Boeken case; therefore, Altria paid the $50 million judgment, despite claiming the judgment was excessive. Altria also lost the Bullock case; however, a new trial is scheduled to revise the amount of initial punitive damages of $28 million.

Lastly, in March 2009, Altria lost the Williams case when the U.S. Supreme Court dismissed the Altria's appeal . . .

As a result of these negative developments, the ratings on both domestic tobacco companies, Altria and Reynolds American, were lowered to a Sell.

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As a result of these negative developments, the ratings on both domestic tobacco companies, Altria and Reynolds American, were lowered to a Sell.
Zacks. When was the last time there was a sell rating on tobacco stocks?

S&P 500 Stocks With Biggest Gap Between Market Price, Estimate  

The following table shows the companies in the Standard & Poor’s 500 Index with the biggest gaps between their stock price and analysts’ average price estimates as of June 11. . . .

Positive Gap Percentage

Total Last Average 1 Year

Tkr Company Name Gap% TGT PX Price Estimate %Return

Health, life insurers hold billions in tobacco stocks: NEJM article 

More than a decade after Harvard researchers first revealed that life and health insurance companies were major investors in tobacco stocks - prompting calls upon them to divest - the insurance industry has yet to kick the habit, they say.

A new article on insurance company holdings, published in today's New England Journal of Medicine, shows that U.S., Canadian and U.K.-based insurance firms hold at least $4.4 billion of investments in companies whose subsidiaries manufacture cigarettes, cigars, chewing tobacco and related products.

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