In short: Ranked #2 — "probably the best balance": ~10% FCF yield, ~60% DCF upside despite the rally, credit second only to PM, new categories turned profitable, ~55% FCF payout leaves room to delever and buy back. He bought in the 30s (17–20% FCF yield) in late 2023/early 2024 and sold at ~$55 a couple of months ago — "not sure if I would add back."
BAT sells Lucky Strike and Dunhill cigarettes plus the Vuse vape, Glo heated-tobacco device and Velo nicotine pouches. A few years ago those newer products lost money; management chose to fund them instead of more buybacks, and they are now much more profitable — a turnaround Lukacs credits.
He bought the US-listed shares in the $20s–30s in late 2023/early 2024 when the free-cash yield was 17–20%, then sold near $55 a couple of months ago after the price roughly doubled. He still calls it "probably the best balance" — about a 10% free-cash yield and ~60% model upside, excellent credit, and a dividend that uses only ~55% of free cash — but he is not sure he would buy it back.
12:23BAT is pretty solid. So, you have this is still cheap enough. I sold BAT at like 55. So, basically is the stock at the same level where I sold a couple months ago. Profitability is very good. Very very good on the return on tangible assets. Return on investment is kind of lower, but maybe it is not even our focus given I explained that return on tangible assets is really what matters here. Credit quality is extremely good.
In short: Profitability benchmark: one of the "top dogs" with Altria and Philip Morris at 40–50% return on tangible assets — "massive profitability."
9:32So this is their 26 guidance 13 to 14 and a half% which is not a bad margin. It lags the great tobacco players. So it's much lower than for an Altria for the top dogs are from profitability standpoint are Altria British American Tobacco and Philip Morris with 40 50% return on tangible assets.
In short: Valuation benchmark: Pernod Ricard now trades below BTI's price/earnings multiple — the marker of how far spirits have de-rated toward tobacco.
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