A minor question: are you concerned by the working capital build? If memory serves, there was a £300 WC build due to increased inventories. If there’s no such WC build in 2024, Imperial would be in a position to increase their buyback.
I agree that any material negatives for NGP in materially large markets would likely be a net-benefit for Imperial. I touched on that notion in the October piece.
I'm not concerned with movements of WC. The model I included, as with all others, is purely for illustration. All inputs were approached with (what I believe to be) a heavy dose of conservatism. Should the core business hold stable/positive for several years, along with Logista likely more positive and net financing likely less negative, there would be ample more FCF available to return. While not shown explicitly above, even in such a negative scenario, FCF available would likely be moderately higher than what is utilized in dividend and repurchase programs. Unless the core business rapidly degrades, basically starting immediately, the powerful compounding effects of share repurchases should show through. At the same time, as I touched on in the conclusion, if the core business does start to degrade, that would likely be reflected by the market price of shares--and a lower price helps bolster the effectiveness of repurchases. It will be a fun balancing machine to watch at work.
BATs has a leading market share of Velo in Sweden and a big share of UK market. USA Velo is a completely different product to BATs superior Europe Velo version and BATs waiting for the FDA approval of EU version, maybe in 2024/2025. USA inferior Velo is just a name change. No information on imperial brands pouch yet apart it ready.
This is largely correct, and I've highlighted specific concerns between the US vs Scandinavian versions of Velo in previous pieces covering BAT. It will take time for Imperial to scale and grow its MONP business in the US. Over that time, if BAT or Altria receive MGOs for their moist variants, it will likely prove even more difficult for Imperial to compete.
Informative report. Regarding there US nicotine pouches range they bought from the Canadian TJP, will they need FDA approval, as company said they will be introduced to the USA in 2024/2025.
The PMTAs related to the acquired pouches have been accepted by the FDA. Now accepted, so long as they remain pending, they are unlikely to be enforced against. I have no opinion on the time it would take or the exact odds of a positive outcome (MGO authorization).
In the UK where a lot of Chinese vape products are legal and sold in big major food retailers Velo, Nordic Spirit (Japan Tobacco) and Altria On, are gaining popularity. Nicotine pouches seem to have a better brand, loyalty than branded Vapes at the moment in the uk.
James, do you have any insights on the quality of TJP’s pouches? Devin previously explained that Velo’s flop in the US was due to its poor quality (moisture, packaging, etc).
I've read a number of reviews stating that the flavors are unique and more 'full'/intense than many other competing offerings. Additionally, TJP pouches appear subtly smaller than others, which certain demographics might find particularly appealing. Looking at the nordics, along with a rapidly growing market, there appears to be a growing interest in experimenting across brands. Will be curious to see if similar trends develop in the United States as the category matures over time.
Thank you for the article Devin! As always I think you have provided a balanced assessment of the company’s results and prospects.
Very little potential upside is priced into the stock. Imperial would likely be a beneficiary if NGPs uptake were to slow down. That’s not anyone’s base case but who knows? In part that will depend on how governments treat NGPs. For instance Denmark just increased taxes on nicotine pouches by $1.70 per pack: https://news.bloombergtax.com/daily-tax-report-international/denmark-raises-tax-on-nicotine-pouches-restricts-alcohol-sales.
A minor question: are you concerned by the working capital build? If memory serves, there was a £300 WC build due to increased inventories. If there’s no such WC build in 2024, Imperial would be in a position to increase their buyback.
Thanks, Tian.
I agree that any material negatives for NGP in materially large markets would likely be a net-benefit for Imperial. I touched on that notion in the October piece.
I'm not concerned with movements of WC. The model I included, as with all others, is purely for illustration. All inputs were approached with (what I believe to be) a heavy dose of conservatism. Should the core business hold stable/positive for several years, along with Logista likely more positive and net financing likely less negative, there would be ample more FCF available to return. While not shown explicitly above, even in such a negative scenario, FCF available would likely be moderately higher than what is utilized in dividend and repurchase programs. Unless the core business rapidly degrades, basically starting immediately, the powerful compounding effects of share repurchases should show through. At the same time, as I touched on in the conclusion, if the core business does start to degrade, that would likely be reflected by the market price of shares--and a lower price helps bolster the effectiveness of repurchases. It will be a fun balancing machine to watch at work.
BATs has a leading market share of Velo in Sweden and a big share of UK market. USA Velo is a completely different product to BATs superior Europe Velo version and BATs waiting for the FDA approval of EU version, maybe in 2024/2025. USA inferior Velo is just a name change. No information on imperial brands pouch yet apart it ready.
This is largely correct, and I've highlighted specific concerns between the US vs Scandinavian versions of Velo in previous pieces covering BAT. It will take time for Imperial to scale and grow its MONP business in the US. Over that time, if BAT or Altria receive MGOs for their moist variants, it will likely prove even more difficult for Imperial to compete.
Informative report. Regarding there US nicotine pouches range they bought from the Canadian TJP, will they need FDA approval, as company said they will be introduced to the USA in 2024/2025.
The PMTAs related to the acquired pouches have been accepted by the FDA. Now accepted, so long as they remain pending, they are unlikely to be enforced against. I have no opinion on the time it would take or the exact odds of a positive outcome (MGO authorization).
In the UK where a lot of Chinese vape products are legal and sold in big major food retailers Velo, Nordic Spirit (Japan Tobacco) and Altria On, are gaining popularity. Nicotine pouches seem to have a better brand, loyalty than branded Vapes at the moment in the uk.
James, do you have any insights on the quality of TJP’s pouches? Devin previously explained that Velo’s flop in the US was due to its poor quality (moisture, packaging, etc).
I've read a number of reviews stating that the flavors are unique and more 'full'/intense than many other competing offerings. Additionally, TJP pouches appear subtly smaller than others, which certain demographics might find particularly appealing. Looking at the nordics, along with a rapidly growing market, there appears to be a growing interest in experimenting across brands. Will be curious to see if similar trends develop in the United States as the category matures over time.