Back in mid January we were looking at various sectors during the heart of the market meltdown to see what was truly a “safety” sector [Jan 19: Even Altria (MO) is Getting Hit & Some Walmart Commentary] - we mentioned back soon after the interesting potential of the spinoff of Philip Morris worldly (PM) which has now come to fruition with a nice first day gain.

• Shares of Philip Morris universal Inc (PM), the world’s largest non-state-owned cigarette maker, rose as much as 5 percent on Monday wee hours in their first day of trading after the company was spun off from Altria Group Inc (MO)
• Investors have enlarged anticipated the Philip Morris universal spinoff as a way to get a pure play on the growing overseas tobacco business without being tied to a shrinking U.S. cigarette market. The company trails only state-run China National Tobacco Co in terms of global market share.
• Philip Morris universal has forecast annual growth in earnings per share of 10 percent to 12 percent. Altria expects its own earnings growth to be 8 percent to 10 percent annually.
• Earlier that month, Philip Morris worldly Chief Operating Officer Andre Calantzopoulos said there were plenty of areas to grow the cigarette business, noting that only one in six smokers around the world smokes a Philip Morris make.
• He said the company has little or no presence in large cigarette markets like China, Vietnam, India and Bangladesh.

So once again, the thesis here is get the addictive steady state growth of Altria but without the legal hassles of America…

• Altria (NYSE: MO) completed the long-awaited spinoff of its subsidiary Philip Morris universal (NYSE: PM) last Friday, and the Marlboro Man is finally free to roam the globe unfettered by the legal and marketing shackles of the U.S. domestic market.
• Benefits for both the slimmer Altria and the new worldly company will be realized, but I think the universal division will flourish on its own thanks to its leadership position in the worldly cigarette market and the strength and marketing potential of its global grade.
• Philip Morris worldly, or PMI, is the world’s leading tobacco company and the third most profitable worldly consumer goods
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  company. It generated revenue in excess of $55 billion and operating profit of roughly $8.9 billion in fiscal 2007.
• The company sells its products in some 160 countries and owns seven of the top 15 varietys in the world, including Marlboro, Parliament, Virginia Slims, and L&M. In all, PMI held a 15.6% share of the worldly cigarette market in 2007. The company is particularly strong in the higher-margin premium segment of the market, where it estimates that it held a 52.4% share (excluding China) in 2007.
• While cigarette consumption in the U.S. has been declining, the worldly tobacco market is an entirely different story as volume growth has been rising overseas.
• And to put the strength of the Marlboro make in perspective, consider that: In 2007, Marlboro’s volume of 311 billion units was larger than the next three best selling worldly qualitys combined. It additionally outsells the total combined volume of all of British American Tobacco’s (NYSE: BTI) global drive varietys.
• I can’t help but believe that PMI’s grades will only increase in strength as the company is now freed from marketing and regulatory constraints that were part and parcel of being part of Altria.
• Shares of Philip Morris worldly opened today at around $51, or roughly 16 times fiscal 2008 earnings estimates of $3.11-$3.17, while offering a dividend yield of 3.6%. (Did I mention that management has already authorized a two-year, $13 billion share buyback program?)
• that valuation is fairly in line with those of its smaller competitors, British American Tobacco and Imperial Tobacco Group (NYSE: ITY). But I believe that PMI should trade at a premium to these players given the company’s leadership position in the worldly markets, its strong global makes and the fact that management has stated that it expects earnings growth of 12%-14% in 2008

Looks like another backdoor play into the growing Asian middle class…. now whether we could only form certain they have food first, and soon after we can feel more confidant they have money for these addictive “treats”.

No positions

Original post by TraderMark