Interactive Investor

ii view: dividend star Imperial Brands exceeds City forecasts

6th April 2022 11:51

Keith Bowman from interactive investor

Growing market share in the US, UK and Australia, and with a dividend yield of over 8%. Buy, sell, or hold?  

First-half trading update to 31 March

  • Expects full-year net revenue growth of around 0-1% on a constant currency basis
  • Expects adjusted operating profit growth of around 1%

ii round-up:

Tobacco company Imperial Brands (LSE:IMB) today flagged first-half profit ahead of City expectations as losses from its next generation products (NGP) continued to reduce, although the company has left full-year estimates unchanged. 

Adjusted operating profit for the six months to the end of March is expected to grow by around 2% on a currency adjusted basis, ahead of analyst forecasts for growth of around 0.3%. 

Imperial shares rose by more than 3% in UK trading, leaving them up by around 11% over the last year, in line with the gain for the FTSE 100 index. Shares for rival British American Tobacco (LSE:BATS) are up by close to 18% in that time.   

Imperial previously laid out a series of new five-year strategic goals, including a heightened focus on its top five tobacco markets generating around 70% of its combustible operating profit, and taking a more disciplined approach to its vaping, or NGP products.

In March, Imperial outlined plans to offload its Russian operations. It employs around 1,000 people in Russia including at its Volgograd factory where operations where previously suspended. Russia and Ukraine represented around 2% of revenues and around 0.5% of adjusted operating profit over its last financial year.

Market share gains across the US, UK and Australia so far this year have more than offset declines in both Germany and Spain. 

First-half results are scheduled for 17 May.

ii view:

Separated out of conglomerate Hanson back in 1996, Imperial is today a Bristol headquartered tobacco manufacturer operating in over 150 countries. Its cigarette or combustible brands include JPS, West, Winston, Davidoff and Kool. Its portfolio of potentially less harmful Next Generation Products (NGP) spans the three categories of vapour, heated tobacco, and oral nicotine with blu, Pulse and Zone X three of its brands.

Its five-year transformation plan is divided into two. Still ongoing, and for the first two years, it is undertaking a strengthening phase. This includes further investment in its five priority markets, NGP pilots, simplifying the organisation and targeting cost-savings. During the following three years it hopes to focus on returns and shareholder value. 

For investors, moves by Imperial and its rivals towards NGP have been hindered since 2019 by safety concerns. The use of flavourings to enhance consumer enjoyment, and even possibly encourage new users, also put the industry under the spotlight. The potential for plain packaging in more markets remains, while a previous rebasing of the dividend also proved disappointing given the sector’s prior reputation for perceived dividend dependability. 

Now under a still relatively new chief executive, market share gains in three of its five priority tobacco markets have been achieved. Losses for its NGP business are reducing and investments made. A rebased dividend also offers increased financial flexibility and scope to continue lowering group debt. In all, while ethical concerns will continue to deter many investors, a historic and estimated future dividend yield of over 8%, even following the rebasing, is likely to remain attractive for many income-seeking investors.  


  • New five-year strategic goals being pursued
  • Attractive dividend payment (not guaranteed)


  • Growth hopes for NGP previously dashed
  • Ethical concerns leave many funds unable to invest

The average rating of stock market analysts:


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