Bill,
Thanks for joining the discussion here. I'll try to tackle your two questions:
Specifically, what is Holt's position or plans when the embargo with Cuba is lifted?
Holt makes no mention of a plan to offer any Cuban cigars in their most recent 10K. Presently, it is illegal for US companies to do business with Cuba, and until that reality has changed, I don't think management could (or should) speculate on the liklihood of the embargo being lifted.
Having said that, I believe all cigar companies must have some fear of Cuban cigars crowding out futures sales of Dominican or other Latin American cigars. If Cuban cigars are able to be sold, I'm sure Holts' will work out an arrangement to sell a line of Cuban cigars. As a distributor, they can sell any line of cigars and profit as the middle man. Notice that they also sell premium brands like Macanudo (a General Cigar product) that competes with Ashton, the brand they sell exclusively. So, presumably, if Ashton sales fall because of an onslaught of Cuban cigars, Holt will probably try to offset that by offering a line of Cuban cigars. I guess I don't see the problem. Cuban cigar companies have to sell their product, and would look to distributors like HOLT to help.
And if we are in a bear market isn't that likely to erode the taste for high price cigars?
This is a very real fear. If sales fall, it will be hard to maintain gross profit margins, and operating earnings growth will falter. However, I feel that this scenario has been priced into the stock already. I'm closely watching the next quarter's earnings report. With the introduction of the new Fuente brand, Premium Dominicana, revenues should be higher. I don't expect sales growth any where near last year, but if they can continue to grow revenues at 10-15% I will be very happy. Net earnings will probably go down due to the increase in outstanding shares from the IPO last year, but this dilutive effect should be finished by fiscal Q4. That's why the PE is so low. The reason I still own the stock is that its balance sheet has so much cash as a percentage of its book value. This company is still generating positive cash flow, which should only increase its book value in the future.
Sorry for the length of the post. I welcome your comments and any others who wish to participate. |
