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First-Mover Advantage Further Confirmed, With Implications Good For British American Tobacco, Bad For Altria

Mare Evidence Lab profile picture
Mare Evidence Lab


  • The Japanese market, the pilot market to heated tobacco products, is critical to study to get a sense of the competitive dynamics for this disruptive product.
  • With Altria still waiting for the COVID-19 restrictions to pass before getting started in larger scale rollouts, they relinquish a critical first mover advantage.
  • We think Philip Morris could start re-evaluating how to treat its deal with Altria, and that BAT has better optionality for the US markets in heat not burn.
  • Altria has its non-combustible portfolio that is doing very well, but given the multiple, there are too many risks on the horizon.
Cigarettes randomly piled in a large heap
Photo by MmeEmil/E+ via Getty Images

Heat-not-burn is the key theme for tobacco nowadays. The product category has proven to be a source of margin expansion for companies with successful launches, and their dynamics are highly disruptive due to the way it cannibalizes business from traditional products, but

This article was written by

Mare Evidence Lab profile picture
Buy-side hedge professionals conducting fundamental, income oriented, long term analysis across sectors globally in developed markets. Please shoot us a message or leave a comment to discuss ideas.DISCLOSURE: All of our articles are a matter of opinion, informed as they might be, and must be treated as such. We take no responsibility for your investments but wish you best of luck.

Analyst’s Disclosure: I am/we are long BTI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (45)

like em better than PM or Mo, am planning on buying tomorrow
Greenhorn Investor profile picture
Do my eyes deceive me? BTI breaking through $40 USD. Good things lie ahead imo. Long BTI.
HATEFEEBAY profile picture
@Greenhorn Investor It's not just that, the nicotine war from Biden might actually help BTI as they are positioned as a leader in non-smokables as it sits. Any action in that direction longer term will serve to benefit BTI and that pullback was a market overreaction. The stock is still undervalued as it sits, I think fair value is $55 even with the underlying currents as it sits with a 10PE, it is a STEAL. The dividend is well covered and strategically, they are organic and globally focused.
@Mare Evidence Lab , based on the comments section, looks like your article struck a nerve and many have questioned the quality and content of your article.

I however, liked the article and thought you had some good insights. Tobacco stocks make me generally nervous, because if you buy BTI, PM or MO, you are buying companies that have vowed to end the very business that they are in. I find this to be a tremendous risk, but also a neat trick if they can pull it off.

Anyway, sounds like you think BTI is the pick of the group, and based on valuation, I would tend to agree.

Mare Evidence Lab profile picture
@Class M Planet yeah, it seems so. they're free to make their comments, many have been helpful
Veritas1010 profile picture
Spelling is important, yes.

However, content and ideas here in an open forum are much more important.

Some people here speak multiple languages with English not their native tongue.

Get over the grammar issues.
@Veritas1010 I am weighting in to express my concern that disregard for spelling and grammar may indicate disregard for financial issues and facts as well.
ALLDAY1 profile picture
@Born Again Guy
a factor by which some quantity is multiplied in order to make it comparable with others
See also weighted average
an increase in some quantity, esp an additional allowance paid to compensate for higher living costsa London weighting

See definition of weighing on Dictionary.com

noun careful consideration

REALLY!!!!!! (LOL)

I'm not sure if you understood the sarcasm in my response to @Veritas1010's ". . . others who have WEIGHTED IN . . ." (below). Clearly, merriam-webster.com's second definition of the intransitive verb "weigh in" is what @Veritas1010 intended.
Veritas1010 profile picture
Like so many others who have weighted in I do not see this issue as a real “issue” to $MO.

I like many investors are certainly sanguine with $MO for its domestic focus as well as their long term opportunities as much as I am equally content with $BTI and its internationally directed portfolio. $MO has made some questionable debt inducing moves, we understand what they are and more importantly they have the moat to mess up occasionally as it is not a continuous CapEx bleed yearly. As for $BTI, we also know they can a bit slow out of the gate but have the globe to balance out risks as well as varying opportunities. They are not constrained by the dicta of a single market and singular body politic and its whims irregardless of how affluent it is to absorb price-hike creep indefinitely.

Both companies offer excellent opportunities for the long term investor. However, at the moment $MO has been swept-up to its (temporary) ceiling (at least momentarily) and I am hold here, but would consider more $BTI residing under $40 USD.
@Veritas1010 , what do you think about the argument that BTI is years behind PM in reduced-risk products, and thus PM is the better buy?

Or do you like BTI mostly because of valuation (i.e.,under $40)?
@Class M Planet

He's chasing Yield, as he got crushed by Shell and AT&T hasn't gotten him anywhere.
@Class M Planet

PM is not a better buy.
wsoyke profile picture
How did this article get past SA editors?
One of the worst article on tobacco stocks ever read on sa. 😔
This article is full of mistakes. For anyone interested in BTI read articles from Librarian Capital - does the best work on BTI on seeking alpha
HATEFEEBAY profile picture
@FCF4Life Let's start with syntax "The Japanese market, the pilot market to heated tobacco products, is a critical to study to get a sense of the competitive dynamics for this disruptive product." I am a linguist, but if you write a professional article in English, get another set of eyes on it. I am long BTI and didn't even finish it as I know it was going to be a train wreck in English alone....
@HATEFEEBAY - I considered that sentence to be perfectly clear. What was your problem with it?
ALLDAY1 profile picture
@HATEFEEBAY This is a message board that can be filled with inaccuracies both in content and spelling and as such is not an English paper submitted for a grade . Some authors and some commenters myself included try their best to be accurate in spelling and in subject matter , but we are not always at the level that some others may expect. Some even comment where English is not the first language and may struggle with the clarity of the subject. My view is we are all not perfect and there are times when disagreement has to do with the subject matter, and even spelling errors when reviewed before sending may get sent without corrections. We can all disagree/agree with the content but If you do not understand it because of spelling or syntax than you are to intent on how it is presented and not the content of the comment or the article. We all try to be precise, but we are all not English Scholars or part of the English or Spell police. If one does not understand or are able to figure out the message , just maybe moving on is better than making a spectacle of it.
I am almost sure that some will disagree with this post as well... But it need to be said !

I'm long BTI, MO, and PM
PM/MO are the way to go. ALWAYS.
kingRIG2.0 profile picture
@G. Blair Bauer great minds think alike GBBauer
Karl Kelly profile picture
I love in Sendai. I rarely see any young people smoking anything but iqos. Basically if you’re 50 and up you’ll still be smoking traditional cigarettes.
There aren’t that many young people, so that makes it hard to grow in life numbers here. BTi and JT are a distant second and third
I am OK too with 3300 shares of MO, 3000 PM and 2230 BTI. They all will do well
now or later when MJ is legalized.
The listed P/E for MO (GAAP ttm) appears to be an aberration having to do with GAAP rules, rather than an accurate depiction of how expensive they are. Their forward GAAP and non-GAAP P/Es are both under 12, as was their non-GAAP ttm figure. Meanwhile, the forward P/E of PM is about 15.

And no, PM is not going to suddenly compete with MO for the US market, they made a pretty firm agreement not to do that, and they don't own any US infrastructure or trademark rights with which to do so.
The analysis has not the quality to be "broadcasted" on Seeking Alpha!
ALLDAY1 profile picture
I think I am OK!
MO 1965
PM 744
BTI 1017

Currently no plans to add further .

Gwyther1949 profile picture
From experience, I doubt that Altria signed the rights to the trademark Marlboro away to PMI in the licensing deal. Altria owns the Marlboro trademark in the USA and that is a huge component to the success of IQOS. All FDA approvals for the three Heatsticks contain the Marlboro trademark (see links). You can't just change the name of a product under FDA regulations; that is considered misbranding. They would have to go back through the FDA with a SE for each product (Substantial Equivalence). Doable, but again, takes time. And, British American has not even received a Marketing Order for their product.


WelshWB profile picture
@Gwyther1949 I agree this article has failed to undertake proper research and is misguided.

BAT is focusing on vapour market within North America specifically consolidating marketshare in which they have done a fantastic job. I don't think they are interested in launching Glo in USA.

Based on the CAGNY presentation of Altria I think the company is developing a strategy which is suitable to the USA market. Since the report showed when barriers concerning the device was reduced iQOS achieved a greater product penetration. Personally I think it would be a mistake to launch a national rollout without determining an effective market strategy. Unfortunately most people on seeking alpha are more concerned with quarterly figures and lack proper business insight to appreciate in the real world it takes time and effort to build a business. Unless if your Elon Musk and Tesla!
Gwyther1949 profile picture
@WelshWB Totally agree. BAT received a Substantial Equivalence order for the old Reynolds Eclipse HNB (ghastly product). They renamed it Neocore and have yet to introduce it in the USA.
Librarian Capital profile picture
This article is deeply misguided. BAT is not selling glo in the US, nor does it want to, because it has always maintained that the US is a e-vapor market and not a heat-not-burn one. And to talk about how Altria basically has the option to renew their exclusive US license on IQOS until 2029 and then to also say Philip Morris can somehow get out of this is inconsistent to say the least.
@Librarian Capital Completely agree and let me add...

PM has no US sales force whatsoever,delivering a successful heat-not-burn product to market is going to take one that is in place already.Many people dont really understand just how complex and nuanced the tobacco and related product catagory is,Part of that complexity is the retailer contracts with the various manufactures that have space requirements. You cant just throw a new product onto the shelves where you would like without voiding someone's contract unless its within the space they have already paid for.

MO success is based on the same factors that it has been for many years.Can they continue to offset lower shipments with higher prices without losing market share.This has been much easier to accomplish during the pandemic as their customers have been flooded with money,and in many cases free time.If and when cannons of money stop getting shot into the system it will be very interesting to see how they perform.
Hermann Balck profile picture
@Librarian Capital The FDA hasn't even approved Glo yet. So Altria does have a 1st mover advantage, Altria said by the end of 2021 25% of the USA geographic footprint will be actively marketed, this will increase rapidly over the next few years approaching 100%.
Cuip99 profile picture
Nah, not a big deal, Oreintals are big Marlbourgh men. They identify with brand names very strongly. BTI might be the first "mover" but it is not the "shaker."
HATEFEEBAY profile picture
@Greenhorn Investor Actually even they call themselves oriental and even name some of their stores that way. Source: I lived in SE Asia, can speak a little Mandarin and can read, write and speak Thai. In the US it is PC to say Asians now, but over in SEA it is normal and not offensive at all.
The US mkt is not open to Glo until they get FDA approval which is not quick or easy so don’t get ahead of yourself and PMI has no US infrastructure to go it alone. You really need to include reality into your assessment
longmoneyvinz profile picture
right now BATS is better for my taste than MO, however the record of MO is incredible and i see huge upside in both of them. LONG MO, LONG BATS!
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