MO/Soma – Yeah, I think they paid a ridiculous amount but, on the other hand, MO looks at how people consume pot and it's mostly vaping and vaping saves them incredible amounts of packaging costs and lets them introduce flavors, etc and, eventually, THC too. So I can see why MO wanted to lock them up though I know a company in China that is much better for 1/10th the price (Kind, we work with them at New Age, as well a Juul).
Good time for a value lesson. MO drops $8Bn to the bottom line and $50 is $92Bn so, even if we assume Juul is worthless and will not increase sales and will not increase profits and they burned the whole $18Bn – then call it $1.8Bn a year for 10 years off profits and that makes profits $6Bn and a 15 p/e takes care of the market cap. So 25% of the profits at risk and we're down from $66 to $50 so 24% makes this right in-line with the worst-case scenario.
| Year End 31st Dec | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | TTM | 2018E | 2019E | CAGR / Avg | |
| $m | 24,611 | 24,466 | 24,522 | 25,434 | 25,744 | 25,576 | 25,351 | 19,658 | 19,921 | +0.8% | |
| $m | 6,379 | 7,000 | 7,576 | 8,138 | 21,787 | 9,993 | 9,480 | +9.4% | |||
| $m | 4,180 | 4,535 | 5,070 | 5,241 | 14,239 | 10,222 | 10,679 | 7,573 | 8,051 | +19.6% | |
| $ | 2.06 | 2.26 | 2.56 | 2.67 | 7.28 | 3.56 | 3.92 | +11.6% | |||
| $ | 2.38 | 2.63 | 2.59 | 2.84 | 0.033 | 3.49 | 4.07 | 4.00 | 4.32 | +8.0% | |
| % | +25.4 | +10.4 | -1.6 | +9.6 | -98.8 | +10,518 | +28.6 | +14.5 | +7.99 | ||
| x | 14.4 | 12.4 | 12.6 | 11.7 | |||||||
| x | 1.00 | 0.86 | 1.58 | 1.54 | |||||||
| Profitability | |||||||||||
Of course my long take on MO is based on their eventual entry into cannabis, which could easily double their $25Bn in sales and $8Bn in profits so I think it's a very good deal down here.
That being said, in the LTP we have:
| Short Put | 2020 17-JAN 65.00 PUT [MO @ $49.43 $-1.01] | -5 | 3/1/2018 | (392) | $-5,000 | $10.00 | $8.48 | $-10.00 | $18.48 | $0.57 | $-4,238 | -84.8% | $-9,238 | ||
| Long Call | 2020 17-JAN 50.00 CALL [MO @ $49.43 $-1.01] | 10 | 4/26/2018 | (392) | $8,000 | $8.00 | $-3.68 | $4.33 | $-0.29 | $-3,675 | -45.9% | $4,325 | |||
| Short Call | 2020 17-JAN 65.00 CALL [MO @ $49.43 $-1.01] | -10 | 4/26/2018 | (392) | $-2,500 | $2.50 | $-1.60 | $0.90 | $-0.05 | $1,600 | 64.0% | $-900 |
I was almost ready to DD last Friday but now I think we should so for the LTP, let's:
- Roll the 5 2020 $65 puts ($18.50) to 10 2021 $50 puts at $9.50 evenish.
- Roll the 10 2020 $50 calls at $4.25 ($4,250) to 20 of the 2021 $40 ($10.50)/$55 ($3.70) bull call spreads at $6.80 ($6,800)
- Buy back the 10 short 2020 $65 calls at 0.90 ($900)
So we are spending $3,450 more than the net $500 spread we started with back in March (with the put sale) but now we have a $30,000 spread that's $20,000 in the money at $50 with 10 short $50 puts as our worst case. Obviously great for a new trade as well but here's a classic case where the stock going 25% against us simply allows us to move forward to a 2x commitment (still miles away from a full allocation block) with much more upside than we began with.
