This company, primarily a manufacturer of cigarettes, cigars and pipe tobacco, and smokeless tobacco products, has been grouped into cigarette and cigar sector in tobacco industry.
It seems that demand for premium tobacco products of companies in this sector has been gradually declining in the past three years as indicated by continuing decrease in sales volume of some of typical companies, whose major products fall into that category. However, we also saw apparent shifting of demand to discount cigarette products.
It seems that, for many companies, the price of their products has been seen rising in the past three years, which, to a large extent, offset the decrease in volume of many companies. In addition, the increasing price seems to be helping improve margin and bring increasing cash flow while offset by increasing expenses in current unfavourable industry and regulation climate.
The typical companies’ gross margin has been kept at about average 61% in the past several years. With a slight decrease in SG&A as percentage of sales (about 19% in 2017), the typical operating margin went up to about 44% in 2017.
The typical average stock price/cash flow ratio is about 16-18.
It seems that the demand for cigarette and cigar products of this company has been slightly declining in the past two years but the demand for its smokeless products seems to have been increasing during the same period.
The first three months fiscal 2018 compared with the same period of 2017
Net revenue (including products taxes) increased 0.4% primarily due to increase in smokeless products offset by decrease in smokebale products.
The fiscal 2017 compared with the 2016
Net revenue (including products taxes) decreased 0.7% primarily due to decrease in smokeable products offset by increase in smokeless products.
The fiscal 2016 compared with 2015
Net revenue (including products taxes) increased 1.2% primarily due to increase in all categories of products.
Its gross margin (excluding exercise taxes) has increased from around 59% in 2014 up to about 62% of 2017 due to sales’ shifting to smokeless products. Its operating margin thus increased to about 49% in 2017 with the lower SG&A as percentage of sales (down to about 12% at 2017 due to lower spending in smokebale products).
Stock performance
This stock currently has a stock price/cash flow ratio of 16. We think that its stock is being relatively undervalued compared with its peers.
