This company, primarily purchases, processes, packs, stores and ships tobacco to manufacturers of international brand cigarette has been grouped into cigarette and cigar sector in tobacco industry.
It seems that demand for tobacco supply has been actually declining as indicated by slightly decline in volume of typical companies in this sector. Consistent with demand’s shifting to discount cigarette, manufacturers’ demand for raw tobacco has been shifting to lower price product, which, working together with oversupply in 2015 and 2016, put down the price of tobacco price.
While gross margins of those companies were improved due to oversupply of farmers’ production, their cash flow margins have been hurt due to deleveraging of corporate expenses as revenue declined.
The typical companies’ gross margin has gone up to 16% since 2015. With a slight decrease in SG&A as percentage of sales (about 9% in 2017), the typical operating margin went up to about 7% in 2017.
The typical average enterprise/sales ratio is about 0.8.
It seems that the demand for tobacco products of this company has been stable as indicated by the sales volume. The fluctuation in the average selling price seems smaller compared with its competitors in the past three years. However, what is consistent with its competitors is that the average selling price declined as tobacco supply price declined during the same period.
The first nine months fiscal 2018 compared with the same period of 2017
Net revenue (tobacco sales) was flat due to increase in price (green tobacco) offset by decrease in volume.
The fiscal 2017 compared with the 2016
Net revenue (tobacco sales) was flat due to decrease in price (green tobacco) offset by increase in volume.
The fiscal 2016 compared with 2015
Net revenue (tobacco sales) was down by 7% due to decrease in price (green tobacco) offset by increase in volume.
Its gross margin was still at 18% in 2017. Its operating margin thus increased to 8% in 2017 due to an improved in SG&A as percentage of sales.
Stock performance
This stock currently has a stock price/cash flow ratio of 11. We think that its stock is being relatively fairly valued compared with its peers.
