8 October 2024
If you are covering Imperial’s latest results, please see the following comment from Chris Beckett, head of equity research at Quilter Cheviot:
"Imperial Brands’ trading update today highlights a robust strategy focused on increasing capital returns. The company has announced a significant buyback program of up to £1.25 billion over the next year, representing 7% of its market cap. Additionally, the dividend has been increased by 4.5% on an underlying basis, with a transition to four equal payments throughout the year. This change will provide investors with an attractive 8.4% yield from the stock over the next year.
“When you combine an over 8% cash dividend with a 7% buyback, the total return becomes compelling, even if the business isn’t experiencing rapid growth. Imperial’s statement also notes an acceleration in earnings per share, partly due to the reduced share count from the buyback.
“Imperial is executing its business model effectively, generating substantial cash flow and returning the majority of it to shareholders. While the transition away from traditional tobacco products remains uncertain, the investment case hinges on the cash generated before the decline in combustible cigarette sales. The management team is delivering on this strategy, which is why we maintain a buy recommendation on the stock. However, it’s important to note that many clients choose to exclude tobacco stocks from their portfolios."
