In short: Ranked #4 "just because it's so damn cheap": 18% FCF yield on midpoint guidance, 125% DCF upside, but "clearly the highest risk turnaround" — restructuring and missed targets make him hesitant, "I just keep an eye on it"; likes the dividend cut and deleveraging, but "first I need some execution from management."
The Danish cigar maker (cigar names like Cohiba, plus nicotine pouches) is by far the cheapest name — an 18% free-cash yield on management's guidance and 125% model upside — which is the only reason he ranks it above Philip Morris. It is also the riskiest: a restructuring under a management team with a history of missing its targets, and the lowest profitability apart from Japan Tobacco.
He likes what the company did — cutting an unaffordable dividend to 40–60% of earnings, paying down debt and planning buybacks — and bond investors are not worried (its euro bond trades above par). Two days after calling it a possible top risk/reward idea, here he frames it as a watch: "I just keep an eye on it… first I need some execution from management."
8:33And then you have Scandinavian Tobacco, which is the extreme outlier with an 18% free cash flow yield based on management midpoint guidance and 125% upside, but also clearly the highest risk turnaround. So, you have a dividend cut, you have deleveraging. I'm in favor of both of those.
In short: "If you're thinking about a risk-reward story, this could be number one." ~18% 2026 FCF yield at the guidance midpoint, ~7% dividend under the new 40–60% payout; conservative DCF (10% discount rate, 0–1% growth, 5–15% buybacks) gives bear +77% / base +130% / bull +190%. Risk: management has under-delivered on guidance before; Europe weak, pouches only ~4% of sales.
Scandinavian Tobacco is a Danish company that is the world's biggest maker of cigars — hand-rolled premium cigars sold mostly in the US, and cheaper machine-made cigars and pipe tobacco sold mostly in Europe — plus a small but fast-growing nicotine-pouch brand (XQS). The shares fell hard this year because the company badly missed its own targets, a new IT system (ERP) disrupted billing, European sales slipped, and it cut its dividend roughly in half.
Lukacs thinks the market over-punished it. The dividend cut is healthy: the company now pays out 40–60% of earnings instead of more than it earned, which leaves cash to pay down debt and buy back shares. Using the company's own 2026 guidance for free cash flow (the cash left after running and maintaining the business), the stock yields about 18% in cash and roughly 7% in dividends. Even assuming almost no growth and few buybacks, his discounted-cash-flow model says the shares are worth 77% more than today; the middle case is +130%.
The catch is trust: this management team has over-promised before, so the numbers only work if they deliver. That is why he builds in very conservative assumptions — and why he ranks it as possibly his best risk/reward idea.
17:42Now 26 expected free cash flow yield. So I'm going to use when I'm in this bullet point I'm thinking midpoint of guidance. So that is 18% free cash flow with a 7% dividend yield. And what's the thesis? So cheap if execution delivers significant upside on free cash flow assumptions which are I think are very conservative relative to my growth rate assumptions with further potential from buybacks after the deleveraging and higher than expected growth.
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