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PHILIP MORRIS INTERNATIONAL

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Philip Morris International : launches first Africa store to spark alternative cigarettes demand

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07/26/2019 | 04:04am EDT
bPhilip Morris International's CEO Andre Calantzopoulos poses with the new IQOS 3 devices at a news conference in Tokyo

JOHANNESBURG (Reuters) - The South African unit of cigarette maker Philip Morris International Inc opened its first flagship store in Johannesburg on Thursday, as it tries to grow demand in Africa for its alternative heated tobacco product IQOS.

The store in Sandton gives Philip Morris access to tourists and business people from Africa who frequent Africa's richest square mile, allowing it to use its retail footprint as a springboard to expand in the rest of the continent.

"If you look at Sandton, it's the business hub of South Africa and Africa as well so it's the one place where we need to start with our permanent flagship store," Philip Morris South Africa Managing Director Marcelo Nico told Reuters at the sidelines of the launch.

South Africa is the first and only market in Africa where Philip Morris sells IQOS, an acronym for "I quit ordinary smoking," which the company says contains up to 95% fewer toxic compounds than regular cigarettes.

"We are bringing the first experience of commercializing this technology on the African continent and the objective is, based on this experience over time, roll it out in the rest of the continent," Nico said.

Philip Morris, maker of Marlboro cigarettes, launched a pilot store in Cape Town in late 2017, which operated for about a year, to test the market's appetite, Nico said. Over time it plans to return to Cape Town with a permanent store.

The firm began selling IQOS in 2017 in South Africa with the affordable 2.4 model and later launched the IQOS 3 and MULTI in November last year.

Unlike traditional smoked cigarettes, IQOS devices electronically heat tobacco-filled sticks wrapped in paper just enough to generate an aerosol that contains nicotine. They are different from e-cigarettes such as the popular Juul device, which vaporizes a nicotine-filled liquid.

The 160 square meter (1,722 square foot) store's interior is minimalistic with lounge couches, bright lighting and an information section, where consumers are shown the different effects of burnt cigarettes and IQOS through a machine that emits a white cloudy smoke for IQOS and brownish smoke for normal cigarettes.

Consumers can also hold their phones up to the large picture displays in the store in order to get detailed information, demonstrations and videos about the product.

An estimated 70% of South African adults who have switched to the product since the launch have converted fully to IQOS, the company said in 2018.

One such adult is 33-year-old Evans Manyonga, who started using IQOS two years ago because he was "coughing a lot" from cigarettes and has since converted two of his friends.

"I don't smell of cigarettes. I don't cough. It's smoother and classier," Manyonga, who has been smoking for 10 years, told Reuters at the store's opening.

Neil Borthwick, who was trying IQOS for the first time at the launch, said, "you can smoke it anywhere without smoke or ash and it gives you that same satisfaction that you have with a normal cigarette."

(Reporting by Nqobile Dludla; Editing by Bill Berkrot)

By Nqobile Dludla

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Financials (USD)
Sales 2019 29 937 M
EBIT 2019 11 644 M
Net income 2019 7 813 M
Debt 2019 24 351 M
Yield 2019 5,39%
P/E ratio 2019 17,1x
P/E ratio 2020 15,3x
EV / Sales2019 5,28x
EV / Sales2020 5,01x
Capitalization 134 B
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Mean consensus OUTPERFORM
Number of Analysts 21
Average target price 96,50  $
Last Close Price 85,98  $
Spread / Highest target 27,9%
Spread / Average Target 12,2%
Spread / Lowest Target -6,96%
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Managers
NameTitle
André Calantzopoulos Chief Executive Officer & Director
Louis C. Camilleri Non-Executive Chairman
Jacek Olczak Chief Operating Officer
Martin G. King Chief Financial Officer
Patrick Brunel Chief Information Officer & Senior Vice President
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