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  • 2 weeks later...

Interesting one BAT.  A family member asked me about this and some other stocks recommended for this year by a well known bank.  Almost all of them fell into the defensive category: Tobacco, obvs; Utilities; Property; Pharma; Oil Insurance; Telco and big brand FMCGs.  Seems the big banks are a bit worried...

I have some friends at BAT and did some consulting work for them back in the day and one thing that is abundantly clear is that the tobacco firms are losing customers and have been making up for it with price hikes and share buy backs.  The notion that vaping is in anyway "safe" is a red herring like "clean coal" and this will in any case not reverse the market decline, insiders think the market will never be more than about 15-20% of the total tobacco market.  Once tobacco firms reach the limit of their business model's ability to generate sufficient cash to offer those divis that everyone has been chasing in absence of any decent interest rate return elsewhere, which occurred a few years ago IMO, the game is up.  Perhaps this has been spotted by the market and that is why we saw the market top and sharp reversal.

So fundamentals are bad for the long term.  After a major move markets typically put in a relief move.  This will not eclipse the previous highs if the market is now in a long term decline so how high will it go?  Let's look at the technicals for that:

  • The monthly chart shows the market top after a strong rally reversed with a channel breakout in early 2018.  There was strong NMD on the weekly and daily charts and a clear EWT 1-5 rally to the top.
  • After the channel breakout the market dropped swiftly to the long term supporting trend line and consolidated but then broke out to the down side and stopped just short of the Fib 62% off the ATH and then reversed.
  • This is more likely to be a large scale A-B-C rather than a 1-5 down owing to the depth of the first bear phase and wave Bs are tricky to track but this seems convoluted enough, so far, to be a wave B.  As far as I can tell it looks like we have had the A-B (pink), something I posted on previously, and are now in the final wave C.  And this looks like it is a wave C or a larger wave C (i.e. the wave C - pink - is itself in an A-B-C - blue)
  • On the weekly chart you can see the most likely turn and drop areas: the first is at the Fib 50%, which coincides with the LT trend line breakout zone; the second is the Fib 62%, which coincides with a retest of that LT trend line.  The wave C (blue) rally is looking strong and taking a 1-5 shape so far.  It looks to me like there is another bearish retrace (3-4 - green) to go, which could occur at the Fib 50% (i.e. now) before a final wave 5 run up to retest the LT trend line.
  • There is no NMD on weekly or daily yet (may not get one on weekly but should on daily).

Net therefore I think this stock is in a relief rally that is taking the form of a wave B.  When this tops out it will be downhill all the way to the bottom.  I think there is a bit more to go and favour the Fib 62% level for the turn but will need to see all my signals align, which they do not as yet.  So there could well be a few 100 points in the rally but the big game is catching the drop.  The reason this is interesting is that it may act as a guide to the wider market.  Once the defensive stocks fail the game is up, remember defensive stocks (and indeed also things like Gold) go down in a crash, they just go down less and still pay good divis.

 

BATS-Monthly_220120.thumb.png.1c8f38d81086a407ec812399ce669ea0.pngBATS-Weekly_220120.thumb.png.5bc1d3902131575616f3f43f9afbdc3d.pngBATS-Daily_220120.thumb.png.c227effe318762f71250de3c9a1a265d.png

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Actually vaping looks set to take off again with the US starting to realise the health issues including some deaths associated with vaping in the US recently stem from it being used ad hoc to administer all types of illegal drugs and not anything to do with the device or the basic sugar water and flavourings that is vape juice.

It's effectiveness at aiding people getting off tar filled cigarettes is second to none and given that some 70% of Chinese and south east Asian males still smoke would indicate massive untapped markets for vape devices and associated products world wide.

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13 minutes ago, dmedin said:

The bans on specific flavours of vape are ridiculous.  Hopefully those regulations get overturned 😎

Don't forget cannabis!  Vaping is a lot cleaner and easier than trying to roll up a doobie :P

 

Because vaping is such an effective way to administer a drug, hospitals have been using it for decades to not only deliver drugs but also to treat lung disease. People have started producing class A drugs that have been altered to be used in a vape device but with little understanding or control of dosages. When users turn up in A+E they forget to mention the class A bit for some reason and just report they were vaping.  🚑🤨 

Edited by Caseynotes
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1 hour ago, homopromos said:

Are there any opinions about BAT and other tobacco companies getting into the medicinal/recreational cannabis market as a diversification ploy?

They were certainly looking at it a few years ago but haven't heard that they are going to do it.  Probably too much additional pariah baggage on top of tobacco plus it isn't really diversification as such.

Worth noting that Big Tobacco like Imperial and BAT did once own diversified portfolios in paper, cosmetics and food industries, including businesses like Eagle Star insurance and Allied Dunbar but weren't any good at managing them so divested in the 90s.  I am pretty sure all major tobacco firms are tobacco only now and likely to stay that way.  In fact I would definitely Short any tobacco company than started a diversification strategy, the people there only know tobacco.

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Too early to call on cannabis.  It's fully legal in California (among other places) and that state hasn't fallen apart as far as I can tell.  Then again, they have great weather and are prosperous, so that makes them unique.  (Canada doesn't have the weather, and Britain doesn't have the weather or the prosperity.)

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yes, on the initial cannabis explosion there was very quick over production, turns out the stuff grows like ... er, well weed actually, who could have guessed it. So we watched the cannabis index rise and then fall over the second half of 2019. I don't think BAT are signalling even starting down that route are they?

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One of our financial writers have written a piece on smoking vs vaping vs cannabis. Really interesting read. Here's a snip: 

image.png

Main points: 

  • Big Tobacco turns smoke into vapour
  • Vaping: UK and US take different approaches … with different results
  • Altria’s JUUL investment costs it dearly
  • US vaping crisis highlights importance of a diverse portfolio
  • Can Big Tobacco thrive as cannabis legalisation gains momentum?
  • Altria gets stung for early move into cannabis
  • Can vaping and other smokeless devices become key to the cannabis market?

 

Find the full article here: Vaping or cannabis: where’s the growth for Big Tobacco?

 
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  • 5 months later...
  • 1 month later...
  • 2 weeks later...

Oops, showing my lack of education again?

Apparently a single share of BATS gets you 52.6p. 

 https://www.bat.com/group/sites/UK__9D9KCY.nsf/vwPagesWebLive/DO538FK6

 

So I  have no idea what the significance of the designation 'Ordinary 25p' is in the share title.  Because 7% of 25p is not 52.6p :D

'BRITISH AMERICAN TOBACCO PLC (BATS) ORDINARY 25P'

Edited by dmedin
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