WOOD Flash – Philip Morris CR: 1H20 results – business model transition continuing
This morning (30 September), Philip Morri s CR (PMCR) announced its 1H20 results. The revenues were driven by growing sales of HEETS, while the inferior margins related to the distribution of HEETS has taken a toll on profitability, as the gross and EBITDA margins were down by 300-650bps yoy. EBITDA of CZK 2.5bn was down by 15% yoy and below our expectations, on a 350bps expansion in the opex/sales ratio (most likely related to the higher distribution and marketing costs of HEETS). The EPS of CZK 631 was down 14% yoy and, while we expect the 2020E dividend to be lower vs. the CZK 1,560/share distributed from the 2019 earnings, we still expect the dividend yield to reach 8-9%. We rate the company a SELL, as PMCR continues to transition to a distribution-led business model, and we expect the margin trajectory in the near term to remain similar to 1H20, until we see the HEETS sales reaching their full potential.Philip Morris CR is engaged in the production, sale, distribution and marketing of cigarettes and other tobacco products and the provision of related services. Co. manufactures the following brands of cigarettes: L & M, Bond, Marlboro, Philip Morris, Petra, Start, Sparta, and Chesterfield.
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