Karelia Tobacco Company Inc. engages in the manufacture and wholesale of tobacco products in Greece. The company provides cigarettes, cigars, hand rolling cigarettes, and other duty free tobacco products under the George Karelias and Sons, Omé, Karelia Slims, Karelia Blue, Oriental Mist, American Legend, Leader, Karelia Royal, and Wellington brand names. It also exports its products to approximately 50 countries. The company was founded in 1888 and is based in Kalamata, Greece.

Greece

Karelia Tobacco Company Inc.

Consumer Defensive

The company pays dividends most of the time. It has paid dividends in almost every one of the past ten years. Dividend per share (DPS) has grown yearly, but the dynamics are unclear. In the past 12 months, the dividend yield has barely been above zero and was substantially below that of its peers. On average, the company pays dividends annually. 

KARE.AT reported revenue of EUR 1 464mn in the last 12 months, up 11% from FY23. The dynamics of cash flow, as measure by free cash flow (FCF), were rather similar. EPS grew 10% from FY23 to EUR 34.45.

Over the last six months, the stock performance has varied, with an increase following a drop. The stock's price trend wasn't definitive when matched against its global counterparts from the same sector and industry (as depicted above). Within the past six months, its performance has trailed this peer group's by 9ppts and its growth decelerated by 1ppts in the past month. This is equally valid for peers from the same country and industry. Given the stock's valuation versus its peers, its total price movement is neither favourable nor unfavourable.

The company has reported modest EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 8.3% in the last 12 months, up from 7.9% in FY22. 

Historically, KARE.AT has reported average net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 6.5%, down from 6.7% in FY22. 

Karelia Tobacco Company Inc. reported a return on equity (RoE) of 13.4% in the last 12 months, down from 13.5% in FY22. 

Another important profitability metric, return on assets (RoA), amounted to 11.0% in the last 12 months, a decrease from 11.3% in FY22. 

In the last 12 months, the return on capital employed (RoCE) declined to 13.3%, above the peers. 

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 3.4 in the past several years. This ratio implies a excellent shareholder value creation. 

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

KARE.AT has very poor trading liquidity. It will take considerable time for the average private investor to sell a common position under normal market conditions. Liquidity is unstable and becomes extremely unfavourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions. Another factor to consider is the substantial number of days with zero trading volumes, i.e., without any ability to sell a position. The stock has a small market capitalisation, which usually makes its trading liquidity erratic and unpredictable. 

No other major risks have been identified.

The risk of default is moderate. We note strong debt servicing capacity, adequate interest coverage, solid cash flow generation, and an favourable capital structure, among the positive credit factors. Among the negative credit factors, we point to weak positions in its industry, bleak profitability, and poor working capital management.

In highly turbulent market conditions, KARE.AT is as volatile as an index. In other words, the stock will move with the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be limited. 

In normal market circumstances, KARE.AT is as volatile as an index. Put differently, without outstanding market volatility or shocking company news, the stock's price will move with the index. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to negligible. 

Based on key historical and expected multiples, the stock is undervalued relative to its peers. Specifically, the stock is 'cheap' on P/E, undervalued on EV/EBITDA, reasonably priced on P/FCF. 

Karelia Tobacco Company Inc.

€ 316

5

Karelia Tobacco Company Inc.

€ 316

5

Risk factor

Profitability factor

Risk / Profitability

Risk factor

Profitability factor

€ 316

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