17 May 2022
If you are covering the latest results from Imperial Brands, please find below a comment from Chris Beckett, head of equity research at Quilter Cheviot:
“Imperial reported a slightly better than expected set of H1 results this morning, but structural weaknesses remain. Combustible tobacco volumes declined 1% in the first half, but this was offset by higher prices, driving revenues slightly higher. The company is gaining market share in three of its five priority markets.
“Looking at the vaping and heated tobacco part of the business, sales grew 9%. Heated tobacco trials in Greece and the Czech Republic are described as 'successful' justifying further roll-out but it will be a long time, if ever, before this is a meaningful part of the business. Imperial remains a very long way behind its competition, as Philip Morris and BAT lead in 'next generation' categories.
“With the stock trading on 6.8x 2022 expected earnings and offering a 8.3% prospective dividend yield, flat sales and profits are more than enough to support the current share price particularly in the present market environment. However, Imperial's problems are over the medium term as the industry transitions towards vaping and heated tobacco products. Both Philip Morris and BAT are much better positioned and have achieved more success in these areas so far.
“For investors, BAT remains the preference amongst tobacco stocks. You pay a higher multiple (10x) but benefit from better market positions and take on lower execution risk.”
