Analyse af Philip Morris International
Analyse, 11. marts 2015, Philip Gorham
As we had expected, the U.K. government passed a bill in the House of Commons that would introduce standardized packaging in the U.K. from 2016. The bill will now move to the House of Lords for final ratification next week. While we believe this development in isolation will have limited impact on the names under our coverage, we are concerned that the spread of plain pack legislation could be a significant negative for the industry, and we would probably revise our pricing assumptions for the global players if similar legislation spreads to other markets. Until we gain more visibility into governments' strategies, however, we are retaining our wide moat and stable moat trend ratings for the tobacco multinationals we cover.
Following around two years of consultation, culminating in last year's Chantler report that concluded that the introduction of plain packs would accelerate the decline of smoking rates, the U.K. government put this plain packs bill to Parliament. Although there was something of a rebellion amongst the coalition ranks--113 MPs voted against it--we do not anticipate any significant challenges to the passage of the bill in the Lords, given its broad cross-party appeal. Plain packs could be a reality in the U.K. by May 2016.
We believe plain packs are a threat to the profitability of the tobacco industry because they could cause trading down by smokers and/or erode the pricing power of premium brands over lower-priced competitors. In an industry that already has limited opportunities to communicate with its core consumer, plain packs would eliminate trademarks and packaging branding, some of the few remaining marketing tools available to cigarette manufacturers. In turn, we believe this could lead to trading down to cheaper brands by consumers less able to differentiate among brands. Differences in taste and perceived quality are likely to offset trading down, however, particularly at the higher end where smokers tend to be more brand-loyal.
Bulls and bears say
Bulls say
- With 28% global market share (excluding the U.S. and China), PMI is the largest publicly traded tobacco company in the world. This unmatched scale, customer loyalty to Marlboro, and its addictive products give the firm meaningful pricing power.
- PMI owns the international rights to Marlboro, the iconic global cigarette brand, and the strength of its product portfolio makes the firm the price leader in many international markets.
- There is a long-term trend of trading up in emerging markets, and Philip Morris is the best-placed of the international manufacturers to benefit.
Bears say
- Plain packaging legislation is one of the few legitimate regulatory threats to Philip Morris' wide economic moat.
- With its revenue derived in foreign currencies and about one quarter of its input costs in dollars, a strengthening of the U.S. dollar can have a material impact on earnings growth.
- Although Marlboro is the only truly global cigarette brand, differences in tastes and preferences across geographies limit the economies of scale the firm can derive from the brand.
©2015 Morningstar. All rights reserved. The information, data, analyses, and opinions contained herein (1) are proprietary to Morningstar, Inc. and its affiliates (collectively, “Morningstar”), (2) may not be copied or redistributed, (3) do not constitute investment advice offered by Morningstar (4) are provided solely for informational purposes and therefore are not an offer to buy or sell a security, and (5) are not warranted to be accurate, complete, or timely. Certain information may be self-reported by the investment vehicle and not subject to independent verification. Morningstar shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, this information, data, analyses or opinions or their use. Past performance is no guarantee of future results.
