16 May 2023
If you are covering Imperial Brand’s latest financial results, please find below a comment from Chris Beckett, head of equity research at Quilter Cheviot:
“Imperial’s results this morning are a good reminder, for those without ethical investment considerations, of the attractions of a tobacco stock - low valuation, strong cash flow, a high dividend yield and share buybacks. The company offers an 8% prospective dividend yield and a 6% buyback this year (with £500m still to complete) meaning its current valuation is more than discounted.
“While the traditional cigarette market is in decline, Imperial has taken advantage of rising prices to grow that business’ market share over the last six months. Furthermore, its next generation products, such as heated tobacco and vaping increased sales 20%. This part of the business only represents 7% of the group, so it will be looking to increase this over time as more and more people shift to less harmful products.
“However, competitors have been quicker and more effective in growing sales in these categories exposing the company to disruptive decline, and as such there are better placed companies available to investors, such as BAT. Imperial’s current strategy is akin to rolling out 'me too' type products across a range of European markets - but losses are increasing again. This will need to shift to strong sales or proper innovation if it is to have appeal over the long-term.”
