Where there is Smoke, there is Fire

“Smoking numbers have been dropping in the developed world for over 2 decades, tobacco companies share prices have not reflected that trend though. Going forward, there is only so much M&A activity that can be done and price increases to offset lower sales.”


 

To market to market to buy a fat pig It was another record high for the Dow on Friday, finishing up 0.15%. The big news hitting the markets was that, Tobacco stocks tank after FDA says it plans to cut nicotine in cigarettes to non-addictive levels. Altria dropped 20% off the bat but then recovered to ‘only’ be down 9.5%. On our market, British American Tobacco was down 7% just before the close. Interestingly Philip Morris dropped 7% on the news and then recovered to finish the day up 0.3%. The initial drop is what was interesting, remember that in 2008 Philip Morris International (PMI) was spun out of Altria with the end result being that PMI doesn’t have USA assets. While going through the PMI webpage, I found the following:

“Are cigarettes harmful and addictive? Yes, all cigarettes are harmful and addictive. . . . While it can be very difficult to quit smoking cigarettes, millions of smokers have succeeded in doing so.”

 

I suppose if pictures of black, burnt lungs on the cover of cigaret boxes doesn’t stop people smoking, the above statement won’t have an impact either. The WHO estimates that in 2015 there were 1.1 billion people who smoked around 18 billion cigarets a day. The number that matters to the US government is that there are around 1 300 smoking related deaths in the US each day, when you as government are paying the healthcare bill you care about the population being healthy. The estimate is that around 600 000 deaths each year are caused by second hand smoke.

When will the FDA regulations come into effect? Well, there still needs to be much talking and discussion with the public and the industry. The plan for cigaret companies was to have e-cigarets become the replacement for traditional cigarets but if the nicotine levels are much lower, will that switch still take place? Smoking numbers have been dropping in the developed world for over 2 decades, tobacco companies share prices have not reflected that trend though. Going forward, there is only so much M&A activity that can be done and price increases to offset lower sales.


 

A note from Paul

On Starbucks. The market is totally over-reacting to the closure of Teavana stores and the slight slow-down in North American coffee sales. And it is totally under-reacting to the deal in China where Starbucks is taking control of more stores in its most exciting market – Starbucks China


 

Byron’s Beats

We often have recommended stocks that compete with each other. That is natural when you remain focused on specific sectors. Facebook and Google fight for online advertising. Google and Apple are at war to get more mobile users on their platforms. Johnson and Johnson and Stryker compete on quality medical devices. Locally Bidcorp and Famous Brands compete on food supply for restaurants. We even have local companies competing with US based companies. Amazon is pushing hard in India for online retail market share. Their biggest competitor there is Flipkart who has both Tencent and Naspers as large shareholders. This article suggests that Amazon are so obsessed with getting their logistics to scale in India that they will even deliver goods ordered on FlipkartAmazon expands logistics solution to registered sellers. Amazon have done this before and they realise how important scale is to their business.


 

Linkfest, lap it up

How do you define wealth? In days gone by the line between what was the empires land and what was the rulers land was rather blurry. Here is a fun list of what some of the biggest land owners could have been worth – The Richest People in Human History. What is more interesting is reading the stories around each person, they all seem rather colourful.

Sticking with the wealthy people topicAmazon CEO Jeff Bezos is the new richest person in the world – here’s how he got there. After Amazon reported lower profit figures on Friday, he dropped back to second spot, I don’t think it bothers him too much though.

If you think the internet is ex-growth think again. There are still more people on the planet without internet than those who have internet – Planet Facebook More Populous Than China.

Infographic: Planet Facebook More Populous Than China | Statista You will find more statistics at Statista


 

Home again, home again, jiggety-jog. The All Share is a whisker away from all time highs, Naspers being at an all time high has a lot to do with it and that most of the big hitters in the index are multinational companies. The week ahead holds Apple’s numbers, Tesla and MTNs, all big numbers considering each companies current position. The Rand is holding steady around that $/R 13.00 mark.


 

Sent to you by Michael, Byron and Paul on behalf of team Vestact.

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