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katzm

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  • Tracking Warren Buffett's Berkshire Hathaway Portfolio - Q1 2015 Update [View article]
    FYI, Jorge Paulo Lemann is not on Berkshire's Board, and never has been. Buffet and Lemann met in 1998 when they served on the Gillette Board together, I believe.
    May 17, 2015. 05:59 PM | 1 Like Like |Link to Comment
  • Philip Morris - The Last High-Yielding Tobacco Stock [View article]
    Matthew,
    I try to invest in “wide moat” businesses for 2 or more years. I was in PM for more than seven years. I started investing in PM way back in April 2001; added in September 2002, December 2005, and April 2007, and piled in ultra-heavy at the spin in late March 2008. I rotated some small $ out in 2011, mostly to deploy into the CME. By April 2013, I began to think PM looked fully valued and started to exit. I exited in my retirement accounts first because that was costless. I wanted to hang tough with PM because of its dominant position and I LOVED the dividend(!!), however, as the quarters went by and the debt went ever higher; core executive management began to leave; plain packaging started to gain increasing traction, first in Australia and New Zealand, and now headed to the UK, Ireland, (and maybe France); government excise taxes took an ever increasing amount of total revenue; consumption continues to decrease, somewhat dramatically; the threat of the TPD possibly outlawing menthol in Europe; an uncertain transition to much more costly at retail RRPs; and, finally, when King dollar started to pull away and emerging markets currencies became dogs, I was completely out by late January 2015. Thankfully, I got out at prices from ~north of $82 - $96.315 (on 4/12/13).
    I think that if you compare PM in April 2008 to PM in April 2015, you’ll see an entirely different animal. Back in 2008, PM was relatively unlevered and, so, PM was repurchasing massive amounts of stock; the PE ratio was much lower; emerging markets were soaring and the US dollar was weakening; plain packaging wasn’t on the scene; acquisitions were in places like Canada and South Africa. Today, seven years later, PM is levered; PM can’t repurchase a single share, without going down to BBB (still not that bad); its cash flow is barely covering the dividend; it’s making acquisitions in more edgy markets like Egypt and Algeria (and billionaire Board member Carlos Slim is only too happy to sell his last 20% of PM Mexico to PM and get off the Board!); it’s (understandably) closing its largest factory in Europe (in the Netherlands), closed its only factory in Australia (Melbourne); is praying that it can transition smokers to its (more costly) RPPs in Japan and Italy, and elsewhere, without making a beneficial health claim (which it will probably never get from an Obama FDA); there’s a very serious threat looming out there from plain packaging. And, for all of this you’re paying something like 19x this year’s earnings, right?
    The Russian ruble has strengthened 20% since 2/5/15 --- i.e., during the past 56 days. Much more significant, IMO, is the fact that the Russian ruble is at least at or close to at least a 5-year low. An appreciating ruble, Czar Putin, and Russian corporate governance, or regular governance is nothing I care to bet my money on.
    I see and miss that juicy PM dividend, but I think that may be the tail on the dog. Maybe I’m overly cautious, but it appears to me this dog’s got a couple polyps showing up on the scan. Are they benign or malignant? Let’s see what PM says two weeks from today. For now, I’m still on the sideline. Good luck. Mitch
    Apr 2, 2015. 08:57 AM | 2 Likes Like |Link to Comment
  • Philip Morris International's (PM) Management Presents at Consumer Analyst Group of Europe Conference - Transcript [View article]
    On 3/17/15, PM CFO Olczak said, "Please note, that I will not be updating guidance today. We will address this subject during our 1Q15 earnings call and will update our currency projections at that time." "Unfortunately, the strength of our underlying business is overshadowed by an unusually serve currency headwind." "We have entered into yen currency hedges for 2016." "We are fully committed to returning ~100% of our fcf to our shareholders . . . . while maintaining the benefits provided by our single-A credit rating in terms of financial flexibility and preferential interest rates. In view of the continued volatility in exchange rates, we do not envision ANY share repurchases in 2015." And, now the specter of plain packaging is encroaching on the EU region, in the UK, Ireland, and even mutterings in France?! How much of a dividend yield does one require to handle this much smoke being blown in one's face?! A 6% yield requirement with a $4 annual dividend (which itself may not be fully covered!) means a stock price of ~$67! A $67 stock price divided by, say, ~$4.00 per share in EPS, would be a PE of 16.75x.
    Mar 29, 2015. 09:50 AM | Likes Like |Link to Comment
  • Kinder Morgan: The Sharks Have Begun To Circle [View article]
    While there's definitely some hair on it, and some debate-worthy concerns, here's maybe a couple reasons one might buy Kinder Morgan (KMI):
    Kinder Morgan transports more than one-third of the natural gas used in the US. Natural gas is the fuel of the future. It's clean(er), abundant, and domestic.
    Kinder Morgan transports one-third of the ethanol in the US!
    Kinder Morgan appears to be one of the only players on track to get its $4.5 billion Trans Mountain Pipeline expansion approved to help the Canadians get their oilsands bitumen out of Alberta and realize a market price for that landlocked resource! Our environmentally minded President can't stop the Trans Mountain expansion. The Conservative Party Prime Minister of Canada --- from Alberta, ahem --- should, hopefully, get his NEB to approved the pipeline by this time next year!
    Kinder Morgan's products (gasoline, diesel, and jet fuel) pipelines are vital plumbing for the fastest growing states in the US, like California, Las Vegas, and its Plantation Pipeline along the eastern seaboard rivals the Koch brothers (heard of those billionaire success stories?!) Colonial pipeline!
    Kinder Morgan is the largest independent owner of liquids (and bulk) terminals!
    Kinder Morgan's revenues are underwritten by long-term contracts with, hopefully, creditworthy counterparties.
    Kinder Morgan yields 4.88%.
    Insiders own a lot.
    Yadda, yadda, yadda.
    Mar 26, 2015. 10:00 PM | 2 Likes Like |Link to Comment
  • Kinder Morgan: The Sharks Have Begun To Circle [View article]
    And, that's including weekends and holidays!
    It's good to be one of the world's ~2,900 billionaires!
    But, seriously, I'd feel a little less squirrelly about KMI if Rich would simply pay himself in cash the same amount as say, the CEO of, say, XOM, and he really has to take the remaining difference between $490 million and the tens of millions that the CEO of XOM makes, that he take that remaining compensation in the form of KMI shares --- and keep incremental skin in the game! --- until such time as KMI achieved a BBB+ investment grade rating with, say, a debt to EBITDA ratio of something with a 4-handle and maybe added someone to the Board of Directors that wasn't a "buddy" from Houston or the Museum of Fine Arts in Houston, just to give added comfort to us non-billionaires and Texan Republicans. But, not to take anything away from the man. He's been a visionary and has built a tremendous enterprise, amen.
    Mar 26, 2015. 09:45 PM | 1 Like Like |Link to Comment
  • Kinder Morgan: The Sharks Have Begun To Circle [View article]
    Yes, Rich owns 244,846,090 shares of KMI so he's got an incomprehensible ~$10 billion stake in his baby. However, note that the 2015 distribution will be $2 per share. So, he's also taking out $490 million every year, or $41 million per month, or $1.36 million per day, in distributions/dividends. So, on one hand he's certainly long the stock. On the other hand, he's certainly taking out a lot too (way more than I could ever dream of spending in several lifetimes) --- despite his oh-so-saintly $1 per year salary. He's pretty well covered whether this thing goes to great new heights, or goes the route of his former boss: he-who-shall-not-be-named ... This is one reason, I'd feel even more comfortable if Executive Management opted to shore up the balance sheet after 5/24/17 to at least a strong BBB rather than doling out every last dollar of distributable cash flow. I'm just saying . . . .
    Mar 26, 2015. 10:02 AM | 10 Likes Like |Link to Comment
  • Kinder Morgan: The Sharks Have Begun To Circle [View article]
    Berkshire Hathaway was not mentioned in David's article. That's just a fantasy of mine. Don't forget, on a PE basis, KMI ain't cheap, and Warren's a long-term "value" investor. Who really knows the true intrinsic valley of this country's/continent's midstream oil and nat gas plumbing, but I'm guessing it's durable and going to continue to increase over the next couple of decades at least.
    Mar 26, 2015. 09:19 AM | 3 Likes Like |Link to Comment
  • Kinder Morgan: The Sharks Have Begun To Circle [View article]
    Thanks, David. Of course, I think it's pretty important to keep our eye on KMI's $5.4 billion Trans Mountain expansion project and hope that KMI does in fact get the final decision to go forward from Canada's NEB by 4/12/16.
    Also, it sure would be nice to add the $2.9 - $3.5 - $4.4+ billion Northeast Energy Direct natural gas pipeline to the project backlog!
    And, it sure would be good news to hear favorable things about Phase 1 of the Residual Oil Zone (ROZ) / Tall Cotton project which would/could provide a future boost to the, hopefully, just temporarily sagging CO2 segment's distributable cash flow.
    I would also like to hear that Bakken shale oil production is bumping along alright and that KMI's 1/21/15 $3 billion acquisition of Continental Resources Chairman and CEO Harold Hamm's Hiland Partners midstream platform is meeting, if not beating, expectations, and is on track to be as successful as KM's May 2011 $920 million acquisition of midstream assets from Petrohawk Energy and KM's 5/1/13 ~$5 billion acquisition of Copano Energy which established KM in the prolific Eagle Ford Shale.
    Lastly, I hope that after May 24, 2017, Kinder Morgan will be able to reduce its leverage below 5x debt / EBITDA and make the company a strong BBB-rated credit. Between now and then I'm sure they'll spend up to the max either making accretive and strategic bolt-on acquisitions in this target-rich environment and/or buying up those outstanding warrants.
    Finally, I have a recurring fantasy, that Rich teams up with Warren to take out and carve up TransCanada to make Kinder Morgan THE North American midstream behemoth, and that Rich announces that he will be gradually selling his personal holdings to Berkshire Hathaway, with CEO Steve Kean and CFO Kim Dang reporting up to Berkshire Hathaway Energy's Greg Abel!
    Mar 26, 2015. 06:27 AM | 20 Likes Like |Link to Comment
  • Philip Morris - The Last High-Yielding Tobacco Stock [View article]
    M&M, you're seeing the vodka shot glass as a quarter full. The ruble "strengthened" to 59.38 to the US$, "rallying" ~16% from the low of nearly 70 rubles to the US$ in late January, or just six weeks ago. Meantime, the ruble has depreciated more than 100% during the past two years and is near at least a 5-year low against the US dollar, and I don't think PM has much in the way of ruble hedges. Going long Putin and oil seems speculative.
    Mar 18, 2015. 09:36 PM | Likes Like |Link to Comment
  • Philip Morris - The Last High-Yielding Tobacco Stock [View article]
    Yes, I guess, in dollar terms, depreciating euro-denominated debt deleverages the balance sheet. Unfortunately, euro-denominated debt accounts for just 32.43% of PM's gross debt. More, ominously, and conversely, US dollar denominated debt --- 61% of PM's gross debt --- increasingly levers PM's balance sheet, right? And, the Swiss franc just appreciated some 30% against the euro after the Swiss central bank surprisingly removed its 1.1x peg to the euro, so . . . .
    This morning, PM chose not to update the impact of fx on its 2015 earnings guidance but said that they would do so when they report 1Q15 earnings. PM did use the word "severe," however, to describe the fx impact, and CFO Olczak reiterated no share repurchases in 2015 and that they're doing what they can to manage working capital.
    PM's got a dominant position within the global cigarette industry. It's just facing enormous fx pressures which show no sign of abating; it's got more debt than ever before; it's trying to launch its RRPs; its facing plain packaging inroads in Australia (since 12/1/13), New Zealand, Ireland, and soon the UK (and EU?!); the TPD in the EU threatens to outlaw menthol (but that's several years out); etc. --- and it's trading at ~19.5x this year's earnings. I initiated by position before the spin, and LOADED UP at the time of the spin, in 2008 and thoroughly enjoyed the ride into 2013 - 2014 - and was gone by the end of January 2015. The risk-reward's no longer to my liking.
    Mar 17, 2015. 11:42 AM | Likes Like |Link to Comment
  • Philip Morris - The Last High-Yielding Tobacco Stock [View article]
    Oops. As of 12/31/14, PM's gross $28,247 million in long-term debt was 61% in US dollars; 32.43% in euros; and 6% in Swiss francs!
    Mar 16, 2015. 10:04 AM | Likes Like |Link to Comment
  • Philip Morris - The Last High-Yielding Tobacco Stock [View article]
    As of 12/31/14, PM's gross $28,247 million in long-term debt was 64% in US dollars; 34% in euros; and 10% in Swiss francs!
    Mar 16, 2015. 08:01 AM | Likes Like |Link to Comment
  • Philip Morris - The Last High-Yielding Tobacco Stock [View article]
    As of 12/31/14, PM appeared to have net debt of ~$26,557 million. In 2014, PM had fcf of ~$6,586 million, down from fcf of $8,935 million in 2013. Assuming PM eliminated its dividend --- which it never would do ---, wouldn’t it take PM ~four years to pay-off its debt (which it also would never do)? Finally, though admittedly interest rates may never rise again(?!), keep in mind that interest rates are at 10,000 year lows. What would happen if interest rates did the unimaginable? It’s unimaginable today, but could weak single-A rated PM have to refinance its laddered long-term debt at higher more costly interest rates?

    More importantly, facing the dire threat of plain packaging about to penetrate the high-margin EU region through the UK in May 2016(?), and with PM/Altria desperately trying to gain meaningful traction with their Reduced Risk Products, should we pay 19x earnings when PM’s debt load may be a bit too heavy (too heavy to permit share repurchases with fx markets at these levels), and when fx is brutally whacking PM’s earnings, for who knows how long? Let’s see what PM CFO Olczak says Tuesday morning at the CAGE Conference. I think he’ll reduce 2015 EPS guidance further, getting closer to, say, ~$4.20 per share.
    Mar 12, 2015. 02:23 PM | Likes Like |Link to Comment
  • Philip Morris - The Last High-Yielding Tobacco Stock [View article]
    And, now, Carlos Slim Helu, the world’s second-wealthiest man, is leaving the building as well, albeit he's 75 years old. Slim joined PM’s Board in March 2008 and will retire from PM’s Board at PM’s Annual Meeting in May 2015. From 1997 to 2006, Slim served as a Director of Altria. Slim served as Chairman Emeritus of Grupo Carso, S.A. de C.V., from October 1998 until 5/21/13 (announced) / 9/30/13 (closed), when he sold his 20% interest in Philip Morris Mexico, S.A. to PM (which already owned the other 80%) for ~$703 million in cash, plus some kind of earn-out to be determined two fiscal years after the closing of the purchase, i.e., by ~5/21/15 (or 9/30/15). So, now Chairman and CEO Camilleri, CFO Waldemer and Director Slim --- three of the primary original architects of PM's 2008 spin-off --- have or are in the process of exiting stage right.
    Mar 11, 2015. 06:04 AM | Likes Like |Link to Comment
  • Philip Morris - The Last High-Yielding Tobacco Stock [View article]
    Yes, as of 2/5/15, PM forecast pricing variance of ~$1,900 million in 2015.
    And, PM realized favorable pricing of $1,903 million in 2014; $2,066 million in 2013; $1,759 million in 2012; $1,894 million in 2011; $1,662 million in 2010; $1,984 million in 2009; and $1,223 million in 2008. But that's also something that troubles me a bit. I realize smoking is "inelastic," but can PM really keep increasing prices this much every year --- as it has clearly done successfully for the past seven years, at least since 2008, or do consumers at some point increasingly trade down to less expensive (and less profitable) brands, or turn to illicit products? Not being a smoker, I don't really know if skies the limit for smokers to get their nicotine fix. (I realize cigs are still relatively inexpensive in Russia and Mexico, etc.) And, menthol products are keeping 'em coming. But the TPD is looming out there in the EU region and it appears that plain packaging may move from POME Australia and hit the UK by May 2015. So, . . . . Anyway, it's been a great eight year run. Maybe you're right. Good luck with the fx and the ruble.
    Mar 9, 2015. 02:15 PM | Likes Like |Link to Comment
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