This company, primarily a manufacturer of cigarettes and smokeless tobacco products competing in discount market of tobacco and a real estate developer, 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 tobacco products of this company has been growing in the past two years.
The first three months fiscal 2018 compared with the same period of 2017
Net revenue of tobacco products (including products taxes) increased 4%.
The fiscal 2017 compared with the 2016
Net revenue of tobacco products (including products taxes) increased 6.8%.
The fiscal 2016 compared with 2015
Net revenue of tobacco products (including products taxes) decreased 0.5%.
Its gross margin (excluding exercise taxes) has decreased from around 45% in 2014 down to about 42% of 2017 due to increased MSP expenses as a result of increased sale volume. Its operating margin thus decreased to about 17% in 2017 while its SG&A as percentage of sales was improved (down to about 25% in 2017).
Stock performance
This stock currently has a stock price/cash flow ratio of 62. We think that its stock is being relatively overvalued compared with its peers.
