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Participant ○○○

Lets look at MO and VGR.

Thought I might split-off the VGR comment stream, which has branched to include MO as a sort of comparative tobacco stock. There seems a growing consensus that MO is destined to follow in the path of VGR with declining cigarette sales and the uncertain future of vaping. Might be interesting to see how MO is progressing compared with how VGR progressed to see if these really are comparative or are really separate entities taking separate paths.

VGR cffo and div 2q19.jpg

What is immediately clear is VGR simply hasn't generated sufficient operational cash (earnings) to cover the growing dividend. This means the cash to pay the dividend must come from either asset sales or cash raised from equity or debt issue (assuming there are no joint ventures along the way). From 2Q13, the CFFO -Dividend shortfall was -$461.8MM with $331.7MM net spent on CapEx assets over this period. The growth of equity from 116.4MM shares 2013 to 139.5MM shares through 2Q19 is entirely due to the 5% annual stock split so no $$ raised there. This leaves debt issuance to generate the needed  cash to pay for CapEx and the dividend short fall.


And just to show the effect this has had on the interest expense and the net operational cash....

interest exp as % of cffo vgr 2Q19.jpg

Whew! over 50% of operational cash goes to the interest expense?

Now to MO

MO revenue to net cffo 3q19.jpg

Revenue, net of MSA pmts, shows progressive growth while CFFO, even in rolling 4Q, is up and down.

MO cffo div 3q19.jpg

What is a bit disconcerting about MO's dividend coverage is its cyclicity. The major changes in quarterly CFFO are due in large part to what the 10Q calls "Accrued Settlement Charges", as all other cash adjustments are relatively small, such as working capital accounts, intangibles, asset write downs and so forth. I don't know what this is exactly, but I'd guess it has to do with the difference between the annual projected Master Settlement Agreement charge, used in determining GAAP earnings, and the actual cash paid once its been acurately determined. The net effect of the adjustments over the period shown is relatively small. And the cost of debt (interest) is relatively small

MO int exp and por 3Q19.jpg

As can be seen, MO was trending well with both interest expense which had dropped to only 7% of net CFFO using R4Q and POR of under 80%....but then likely the JUUL debacle sent both of those metrics shooting in the wrong direct...and that isn't good.

But overall, the JUUL issue notwithstanding, you really can't compare VGR to MO. Different companies managed very differently. Yes, MO's got a gradually declining product demand, but its revenue growth, net of MSA, has shown itself gradually positive and dividends have been well supported. This was never the case for VGR.

Just one view


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Participant ○○○

Re: Lets look at MO and VGR.

So, bottom line, VGR can no longer support 40 cents/quarter, so it halved it to 20 cents, and got rid of the yearly stock kicker.  Seems as if your first figure shows that VGR covered that, 20 cents, each year, since 2015, except for Q416.  Looks like a compelling buy to me!  Also looks like MO has done so as well, 'ceptin 4Q16 through 4Q17.  Also looks like a compelling buy to me, given that MO has done so since 1970, whenever Nixon was serving his second year in office.

What about T?  Just askin for a friend.

Nixon was threatened with impeachment, so he resigned.  Trump is threatened with impeachment.  Coincidence?  I don't think so!  8-))


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