Lowering Our Forecasts for Tobacco Companies but Market Derating Overstates Valuation Impact

We have updated our cash flow forecasts and valuations of our tobacco coverage following the announcement from several leading cigarette manufacturers that they intend to change their strategy in the Russian Federation in light of sanctions imposed by the west. While we consider events to be materially negative to cash flows at least in the short term, we think the market has overstated the valuation impacts. We are lowering our valuation of Philip Morris International (PMI) to $103 from $108, and of British American (BAT) to GBX 3,900 from GBX 4,000.