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ARCapitalAltria Group, Inc.

NYSE: MO

Andy YanChris Ng

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Presenters

2

Andy Yan3A Math/FARM

Chris Ng3B Math/FARM

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Investment Thesis

3

Amidst the rallying U.S. equities market, fiscal 2015 is a time for prudency due to

global economic, and political instability. It is imperative to choose a stockthat can produce healthy returns, while minimizing downside risks.

Recommendation: BUY, target $57.16, stop $43.65

Volatile

Oil Prices

E.U.

Deflation Risk

Emerging Markets

Slow Down

Altria Group, Inc. is the ideal choice in hedging

against the risk of global economic instability in the

upcoming fiscal year.

Recession-resistant industry

Market dominance

Outstanding margins and FCF

Growth opportunity in e-cigarette market 10

20

30

40

50

60

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$49.24

$57.16+16.4%

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European Union

BRIC Nations

Macroeconomics

4Source: Trading Economics, U.S. Census Bureau

Declining Growth Historical GDP

Inflation rate 6.59%

2014 Q2GDP growth rate -0.9%

2014 Q2 GDP growth rate 0.25%

Depreciating currency

October WPI fell to 1.77%; 5 year low

Annual GDP growth rate fell to 7.3%

Price of new homes -1.1% in Sept YoY

5-month low PMI at 50.8

Economic uncertainty in

all 4 BRIC nations

Threatens U.S. economic

performance, particularly

its export

4th Largest Trading Partner of U.S. Gloomy Economy

EU17%

Others

83%

2014 YTD Exports:

$208B = 17%

EU18%

Others

82%

2014 YTD Imports:

$311B = 18%

GDP $17,351B

Annual GDP growth rate 1.3%

Unemployment rate 10.1%

High probability of

deflation which could

trigger a recession

Political tension with

Russia, E.U.s 3rd

trading partner

Euro area inflation rate

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U.S. Economy

Oil prices

Macroeconomics

5Source: Trading Economics

Causes Effects

Key U.S. Economic Data Bubble in the Equities Market

Rocketing oil prices if

Saudi Arabia manages to

grow its market share

significantly

Surge in U.S. oil production

Insurgency threat in the Middle

East

Initial low oil price

Bleeds out U.S. energy companies

Potential price shock of oil causing

global recession

Energy companies in SPX

decreased 11.2% in value over the

past 3 months

GDP $16,800B

Annual GDP growth rate 3.5%

Inflation rate 1.7%

Unemployment rate 5.8%FED fund rate 0.25%

TMC/GDP ratio at 126.1%

Potential interest rate hike in 2015

Bubble building in the

equities market

Very sensitive tonegative economic

news

Total market cap/U.S. GDP

WTI Crude Index

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30

35

40

45

50

11/19/2013 2/19/2014 5/19/2014 8/19/2014

MO SPX

Company Overview

6

Business Overview

Altria is engaged in the manufacture

and sale of cigarettes, cigars,

smokeless products and wine in the

U.S.

Holds approximately 27% of the

economic and voting interest of

SABMiller, the worlds second-

largest brewer measured by revenues

Entered the e-vapor category in

2013 by introducing MarkTenelectronic cigarettes in Indiana and

Arizona

Market Segments by Revenues & Market Share, 2013

80%

10%

7% 2%

1%

Segment Market share

Cigarettes 50.6% Cigars 29.4%

Smokeless

products

55.0%

Wine NA

Others NA

Experienced Management

Historical Performance

Martin J. Barrington

Chairman/CEO

21 years at Altria

David R. Beran

President/COO

38 years at Altria

Quality Shareholders

Key Financials

Source: Company filings, Bloomberg

Share price 49.2452w range 33.8050.09

Mkt cap 97.1B EV 108.9B

Share price 49.24 Net debt 11.8B

Revenues / YoY growth 17.7B/ 0.1%

EBITDA / margin 7.7B/ 43.5%

NI / margin 4.3B/ 24.4%

P/E 19.7x FCF yld 5.53%EV/EBITDA 14.1x ROE 104.4%

10Y beta 0.65 Dvd P/O 81.2%

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Industry Overview

7

Emerging

substitutes

Difficult

new

entrants

Weak

buyers

Strong

suppliersIndustry

rivalry

Porters Five Forces

Growth Opportunity from E-cigarette Market Robust M&A

111 112 112118

109 10597 94 93 93

88

0

20

40

60

80

100

120

140

160

0

4

8

12

16

20

24

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

U.S. Tobacco Exp (MM) Avg Price Per Pack

U.S. Smoking Rates

Traditional Tobacco Market Size

Source: Bloomberg, Frost & Sullivan

172 346 521724

1,9853,143

5,124

7,667

11,386

16,975

49%

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

2009 2010 2011 2012 2013 2014 2015 2016 2017 20180

2000

4000

6000

8000

10000

12000

14000

16000

18000

U.S. E-cigaret te Reta il Revenue (MM) Growth Rate

E-cigarette Over Cigarette

Better publicperception

Lower cost in thelong run

Less regulationse.g. indoor usage

More productdiversity

e.g. flavoring

Nicotine-lessproducts

Pending

RAI-LO

merger

53% 34%(26%)

(16%)11%

(3%) 2%

MO RAI' RAI LO ITYBY' ITYBY VGR

63%

91%

67%

2004-2009

2009-2014

2004-2014MO

U.S.

Others

Industry

M&A

dominated

by U.S.

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11.6x

9.6x

23.5x

14.3x

EV/EBITDA LTM

P/E LTM

14.0x

19.6x

Comparable Companies Analysis Details

Precedent Transactions Analysis

Valuation

8

Other Assumptions

Share EBITDA Sales 2013 MktCompany price LTM FY1 LTM FYI margin growth cgt vol cap EV

Imperial 91.74 11.2x 11.2x 19.7x 13.9x 24.1% -6.1% 311B 44B 58B

Lorillard 63.14 11.8x 11.5x 19.6x 18.7x 42.3% 7.3% 40 23 25

Philip Morris 85.81 11.5x 12.0x 16.1x 16.9x 47.1% -0.5% 880 133 161

Reynolds American 65.20 13.0x 12.1x 11.6x 19.1x 39.3% -0.8% 64 35 39

Altria 49.10 14.0x 13.3x 19.6x 19.0x 47.0% 0.9% 129 97 108

High 14.3x 14.0x 23.5x 22.4x 47.1% 93.0% 880 133 161

Low 9.6x 9.4x 11.6x 13.9x 14.0% -6.1% 40 10 11

Average 12.2x 12.1x 18.3x 18.2x 36.0% 11.8% 311 54 62

Median 12.1x 12.1x 19.3x 18.8x 40.2% 1.5% 129 39 49

EV/EBITDA P/E Criterion: $10B EV

5 U.S.-listed companies5 companies listed elsewhere

Date EV/ Date EV/

announced Acquirer Target EV EBITDA announced Acquirer Target EV EBITDA

7/15/2014 Reynolds American Lorillard 26,477 13.0x 9/8/2008 Altria UST 11,613 12.0x

3/31/2014 Japan Tobacco JT Int'l 261 11.5x 7/31/2008 Philip Morris Int'l Rothmans 1,909 5.9x

10/13/2011 British American British American - Chile Op 450 8.5x 3/15/2007 Imperial Altadis 20,476 14.2x

9/8/2011 UBS AG Bentoel Internasional Investama 86 7.6x 1/19/2007 Altria Philip Morris Pakistan 335 13.3x

6/17/2009 British American Bentoel Internasional Investama 644 14.3x 1/19/2007 Altria Philip Morris Pakistan 66 13.4x

10/13/2008 Skandinavisk Skandinavisk Tobakskompagni 909 58.7x 12/15/2006 Japan Tobacco Gallaher 19,020 13.7x

EV/EBITDA: High 14.3x Low 7.6x Average 12.1x Median 13.1x

Source: Company filings, Bloomberg

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Discounted Cash Flow Analysis WACC

Growth Assumptions

Valuation

9

Cost of debt 3.2%

Effective tax rate 35.0%

After-tax Cost of Debt 2.10%

Risk-free rate 2.3%

Beta 0.65Market return 9.4%

Cost of Equity 6.95%

Target D/E 0.15

WACC 6.31%

Other Assumptions

Final EBITDA 10,554

Exit EV/EBITDA 13.00x

Terminal value 137,205Discount factor 0.74

PV terminal value 101,041

Enterprise value 124,733

Net debt 11,755

Implied equity value 112,978

FD shares outstanding 1,976

Implied share price 57.16

(USD MM, fiscal year ending Dec 31) 2011A 2012A 2013A 2014 2015E 2016E 2017E 2018E 2019E

EBITDA 6,321 7,478 8,296 7,809 7,415 7,727 8,241 9,106 10,554

NOPAT 3,556 6,196 4,529 4,188 5,394 5,672 6,088 6,737 7,771

Plus: D&A 253 225 212 203 229 234 243 256 278

Less: Capex (105) (124) (131) (157) (139) (143) (148) (157) (172)

Less: Inc / (dec) in NWC (313) (1,714) 186 611 (524) 120 166 234 385

Less: Equity income from SABMiller (730) (1,224) (991) (1,004) (1,113) (1,234) (1,367) (1,516) (1,680)

Plus: Dividends from SABMiller 357 402 439 461 511 566 628 696 771

Unlevered FCF 3,018 3,761 4,244 4,302 4,358 5,216 5,608 6,251 7,354

Growth (%) 24.62% 12.84% 1.37% 1.31% 19.68% 7.52% 11.45% 17.65%

Discount factor 0.94 0.88 0.83 0.78 0.74

PV of FCF 4,099 4,615 4,668 4,894 5,416

-4%

-3%

-2%

-1%

0%

1%

2%

3%

0%

5%

10%

15%

20%

25%

30%

35%

BASE BULL BEAR

-15%

-10%

-5%

0%

5%

10%

15%

20%

Smokeable products E-cigarettes SABMiller

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Sensitivity Analysis

Valuation

10

Valuation Summary

57.16 5.70% 6.00% 6.30% 6.60% 6.90% 7.20% 7.50% 57.16 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00%

11.00x 50.78 50.04 49.32 48.61 47.91 47.22 46.55 -5.00% 40.96 44.98 49.00 53.02 57.05 61.07 65.09

12.00x 54.82 54.03 53.25 52.49 51.74 51.00 50.27 0.00% 40.99 45.01 49.03 53.06 57.08 61.10 65.12

13.00x 58.87 58.02 57.19 56.37 55.56 54.77 53.99 5.00% 41.02 45.05 49.07 53.09 57.11 61.14 65.16

14.00x 62.92 62.01 61.12 60.25 59.39 58.54 57.71 10.00% 41.06 45.09 49.11 53.13 57.15 61.18 65.20

15.00x 66.97 66.00 65.06 64.13 63.21 62.31 61.42 15.00% 41.11 45.13 49.15 53.18 57.20 61.22 65.24Exitmultiple

WACC E-cigarette 2019E market share

SABCAGR

20.00 25.00 30.00 35.00 40.00 45.00 50.00 55.00 60.00 65.00 70.00

DiscountedCash Flow

PrecedentTransactions

ComparableCompanies

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Catalysts & Risks

11

Chaos on the International Stage Potential Oil Crisis Corporate Finance Transactions

Acquisition of e-cigarette companies

can speed up revenue growth in the

market

Market consolidation led by industry

M&A can combat shrinking

smokeable product market

Other corporate finance activities

Contingencies and Litigations Slow Market Growth

Damages claimed in some tobacco-

related litigations can range in thebillions of dollars

Unforeseen changes in regulations

can negatively impact Altrias future

revenue and net earnings

Other Unfavourable Factors

Potential adverse changes in tobacco

leaf price, availability and quality

Acquisitions fail to achieve expected

results

Faster than expected decline in the

smokeable product market

Expectation of rapid expansion of

the e-cigarette market fail to realize

Catalysts

Risks

Oil prices falls between $55 - 60

ISIS threatens political instability

within the Middle East, or global oil

production

Unexpected interest rate hikes in the

U.S.

Fall out between Russia and

European Union

European Unions monetary policies

fail to provided the stimulus needed

Slowing growth and negative

economic indicators in BRIC nations

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Recommendation

12

Altria Group, Inc. (NYSE: MO)

BUY, target: $57.16, stop: $43.65

Market dominanceRecession-resistantindustry

Emerging e-cigarette

market

Strong financials and FCF

generation ability

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Appendix

13

Discounted Cash Flow Analysis

(USD MM, fiscal year ending December 31) 2008A 2009A 2010A 2011A 2012A 2013A CAGR 2014 2015E 2016E 2017E 2018E 2019E CAGR

Net revenues - traditional 19,356 23,556 24,363 23,800 24,618 24,466 0.95% 24,352 24,596 24,841 25,090 25,341 25,594 1.00%

% growth NA 21.70% 3.43% -2.31% 3.44% -0.62% ^2009 -0.47% 1. 00% 1. 00% 1. 00% 1. 00% 1. 00%

Net revenues - e-cigarettes - 205 613 1,366 2,716 5,061 122.92%

% growth NA 199.26% 122.76% 98.78% 86.36%

Cost of sales 7,990 7,704 7,680 7,937 7,206 7,732 7,905 8,114 8,433 8,943 9,772

Excise taxes on products 6,732 7,471 7,181 7,118 6,803 6,576 7,097 7,168 7,240 7,313 7,386Gross profit 8,834 9,188 8,939 9,563 10,457 4.31% 10,044 9,798 10,172 10,783 11,801 13,498 8.34%

% margin 37.50% 37.71% 37.56% 38.85% 42.74% 41.25% 39.51% 39.96% 40.76% 42.06% 44.03%

SG&A & others 3,081 2,684 2,618 2,085 2,161 2,235 2,383 2,446 2,542 2,695 2,944

EBITDA 5,753 6,504 6,321 7,478 8,296 9.58% 7,809 7,415 7,727 8,241 9,106 10,554 9.23%

% margin 24.42% 26.70% 26.56% 30.38% 33.91% 32.07% 29.90% 30.36% 31.15% 32.46% 34.43%

D&A 291 276 253 225 212 199 229 234 243 256 278

EBIT 5,462 6,228 6,068 7,253 8,084 10.30% 7,611 7,186 7,492 7,999 8,850 10,276 9.35%

% margin 23.19% 25.56% 25.50% 29.46% 33.04% 31.25% 28.97% 29.43% 30.23% 31.54% 33.52%

(+) Equity income from SABMiller (600) (628) (730) (1,224) (991) 13.37% (1,004) (1,113) (1,234) (1,368) (1,516) (1,680) 10.85%

% growth NA 4.67% 16.24% 67.67% -19.04% 1.31% 10.85% 10.85% 10.85% 10.85% 10.85%

Taxes 35.00% 2,905 3,054 3,278 3,628 4,185

NOPAT 5,394 5,672 6,088 6,738 7,772 9.56%

% growth NA 5.15% 7.33% 10.67% 15.35%Plus: D&A 229 234 243 256 278

Less: Capex (139) (143) (148) (157) (172)

Less: Inc / (dec) in NWC (524) 120 166 234 385

Less: Equity income from SABMiller (1,113) (1,234) (1,368) (1,516) (1,680)

Plus: Dividends from SABMiller 511 566 628 696 771

Unlevered FCF 4302 4,358 5,216 5,608 6,251 7,354

WACC 6.31% 4 Growth 1.31% 19.69% 7.52% 11.45% 17.65%

Discount period 1 2 3 4 5

Discount factor 0.94 0.88 0.83 0.78 0.74

PV of FCF 4,099 4,615 4,668 4,894 5,416

Enterprise value Implied perpetuity growth rate Implied equity value and share price

Cumulative PV of FCF 23,692 Terminal year FCF (2019E) 7,354 Enterprice value 124,733

WACC 6.31% Less: Total debt (13,993)

Terminal value Terminal value 101,041 Less: Preferred shares -

Terminal year EBITDA (2019E) 10,554 Implied perpetuity growth rate -0.90% Less: Noncontrolling interest (3)

Exit Multiple (EV/EBITDA) 13.00x 4 Plus: Cash and cash equivalents 2,241 Net debt 11,755

Terminal value 137,205

Discount factor 0.74 Nov 19, 2014 closing price ($) 49.10 Implied equity value 112,978

PV of terminal value 101,041 Implied share price ($) 57.16 Outstanding shares 1,976

% of enterprise value 81.01% Implied growth (%) 16.42% Implied share price ($) 57.16

Implied PE 19.13x

Enterprise value 124,733