October 19, 2007 Leo Efstathiou Jonathan Goto Katy Zhaopeople.stern.nyu.edu/iag/presentations/2007-2008/mo.pdf · 2007. 11. 27. · Leo Efstathiou Jonathan Goto Katy Zhao. Agenda

October 19, 2007Leo Efstathiou Jonathan Goto Katy Zhao

AgendaCompany & Market

Investment Thesis

Risk Factors

Q & A

Valuation

The Company & Market

• 1847 - Philip Morris opens shop in London

• 1924 – Introduction of Marlboro

• 1969 – Philip Morris acquires Miller Brewing Company

• 1987 – Philip Morris International

• 1988 - Acquires Kraft Food

• 2003 – Changes Name to Altria Group

• 2007 – Spins Off Kraft

Market & Company Investment Thesis Risk Factors Q&A Valuation

Company History


Company Structure


Philip Morris Capital Corp.• Leveraged leases of

airplanes, power plants, real estate

• $6.7bn net assets

• No new investments

• Focused on cash flow and asset sales


SABMiller

Altria’s Stake:Book - $3.93 billion Market - $13.28 billion

• USA Joint Venture with Molson Coors• Double-digit growth in Europe and S. America• One of the largest global bottlers of Coca-Cola


PM USA Brands


PM USA by the Numbers

2006 2005Net Revenue $ 18,474 $ 18,134

Operating Inc. $ 4,812 $ 4,581

• Today: 44.5mil smokers, 21% adults (vs 53.7mil in 1983).

• Sales fall 0.7% a yr

• Profit margins have grown (current 30%)

• 30% of women smoke while pregnant

• Males = 23.9%, Females = 18.1%

• 90% of smokers begin before 21. 23% of high students smoke. 8% of middle students.

• a


Domestic Smoking Trends

31%

21%20%

15%

13%

Native AmericanWhiteBlackHispanicAsian


Philip Morris International

• 57.81% of revenue

• Acquisition Growth and Global Trends

• Philip Morris International Spin- off


26.4 24.4 23.6

38.2

17.4

43.3

59

36.233.5

8.9

0

10

20

30

40

50

60

Russia Japan Indonesia Ukraine Brazil Turkey Italy Germany Spain Korea

PMI Market Share in Top 10 International Markets

Totally Market Share %

Philip Morris International cont.


Tobacco Market

0 20000 40000 60000 80000 100000 120000 140000 160000

2001

2002

2003

2004

2005

2006

Asia Pacific - Retail Value RSP - US$ mn North America - Retail Value RSP - US$ mn

Asia’s Tobacco Market

Investment Thesis

Picking Winners


Picking Winners

Value Growth

Income

Safety


Income & Safety


• Non-Cyclical Business

• Resistant to credit problems, recession risk

• Dow down 3% today on recession worries – Altria down .3%

• Dividend Yield: 4.3%

• Payout Ratio: 64%

Value


0

5

10

15

20

25

RAI UST MO CG BTI S&P500

Forward P/E Ratios


Uncaptured Value

Growth


China


• $65-70 billion/year, growing market• Joint venture with CNTC announced in 2005• Little to no coverage in the financial press

“Developments in China have been slower than we originally hoped. PMI expects that this year, licensed production of Marlboro in China will begin and the joint venture will become fully operational.”

- Altria 2006 Annual Report

Risk Factors


Taxation• Minor: Price Increases• Strategy: Adaptability of

Products – Cheaper Economy Brands

Government Regulations• Minor: Banning of

advertising• Strategy: Move into

fledging industries which have looser legislative controls

• Added Barrier to Entry

Social Pressures and Health• Major: Health Awareness

campaigns

• Strategy: Shift to lower-tar variants and cigars

• Smokeless Tobacco – Snuff and chewing tobacco

• Altria supports anti-youth smoking

Risk Factors

Competition• Major: Reynolds

American, Lorillard Tobacco, Vector Group (35% m.s.)

• Growing: smaller manufactures free of MSA settlement. (15% m.s.)

Litigation• Since 1998, class action

suits are frowned upon.

• 2005-2006 great years for litigation.

• MSA settlement: $100bil

• $1.2bil annual escrow fund deposits (in addition to $5bil MSA)


Risk Factors part 2

Q & A

Valuation

Documents

October 19, 2007 Leo Efstathiou Jonathan Goto Katy Zhaopeople.stern.nyu.edu/iag/presentations/2007-2008/mo.pdf · 2007. 11. 27. · Leo Efstathiou Jonathan Goto Katy Zhao. Agenda