Altria (MO; A3 Neg, BBB Pos, BBB S)

• Altria, a pure-play on US Tobacco, was given a outlook downgrade from Moody's last week. Curve already trades to BBB ratings but as we've noted multiple times its held firm in the face of BAT underperformance - a move we found a tad confusing on fundamentals. Signs of that reversing now (below).
• Moody's downgrade is on similar read-through as us on Q1 earnings; US volume headwinds in traditional combustibles not being offset by pricing. That is while it continues sizeable equity returns in the face of low (~14%) non-combustibles exposure.
• We'd again caution above BAT RV with 1) BBB tobacco tends to underperform on spread sell-offs & 2) BAT is more exposed to Euro area regulation (for e.g. impact see Ahold's headwind from Netherlands Tobacco retailing bans).
• BAT31s received the cold shoulder in primary last month - its still trading wide of pricing, which at the time came with a 20bp NIC. Tendering long-end and £ & $ skewed lines since (as part of its planned deleveraging) has done little to give support.
• As an aside on Altria, it does has a 8% stake in IG brewer AB Inbev {ABI BB Equity} valued at ~$9.5b.

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