ii view: Imperial Brands optimistic under new CEO

Full-year results to 30 September

• Revenue down 0.7% to £32.17 billion
• Adjusted operating profit up 4.6% to £3.99 billion
• Total dividend for the year up 4.5% to 160.32p per share - paid in four equal instalments
• Completed share buyback programme of £1.25 billion
• Net debt up 7% to £8.95 billion

Guidance:

• Expects full-year combustible net revenue growth of low single digits
• Expects double digit growth in full-year net revenue for next generation products (NGP)
• Expects full-year adjusted operating profit to rise by 3-5%
• Year ahead 2026 share buyback programme of £1.45 billion

Chief executive Lukas Paravicini said:

"Our consistently strong operational and financial delivery provides a firm platform on which to build as we embark on the next phase of our strategy. 

“Our performance in FY25 adds to our track record of consistent growth, demonstrating the sustainability of our tobacco business and the exciting growth opportunities in Next Generation Products (NGP).”

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ii round-up:

Imperial Brands (LSE:IMB) is a UK, Bristol headquartered tobacco manufacturer operating globally and employing around  25,000 people. 

Cigarette or combustible brands include JPS, West, Golden Virginia, Rizla+, Winston, and Kool. 

The group’s portfolio of potentially less harmful Next Generation Products (NGP) spans the three categories of vapour, heated tobacco, and oral nicotine with blu, Pulze and Zone X three of its brands.

For a round-up of these latest results announced on the 18 November, please click here.

ii view:

Began in 1901, Imperial today sells globally although concentrates on the five key markets of Germany, the UK, the USA, Spain and Australia. Geographically, Europe generated most sales over this latest financial year at 42%. That was followed by the Americas at 35% and the combined Africa, Australasia, Central and Eastern Europe the balance of 23%.

Former finance chief Lukas Paravicini now heads the company, with strategy to include evolving the group’s challenger approach and ambition to provide sustainable value for the combustibles business and scale for the NGP operation. Global competitors include British American Tobacco (LSE:BATS), Philip Morris International Inc (NYSE:PM) and Altria Group Inc (NYSE:MO).

For investors, the NGP business remains loss making. A forecast price/earnings (PE) ratio above the three- and 10-year average may suggest the shares are not obviously cheap. A previously announced move by the UK government to implement a phased banning of combustible sales should not be forgotten, with similar initiatives likely in other countries, while fears about the exact long-term impact of NGP products on users’ health persist.

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More favourably, high cash generation continues to underpin shareholder returns, with cumulative capital returns over the last five years totalling £10 billion. Revenues for the NGP business have grown by 83% over the last five years, with adjusted operating losses reducing by 76%. Cost savings and group simplification remain a management focus. Away from its five core markets, management has Africa in its sights, currently generating only 10% of profits, while a debt leverage ratio at the lower end of management’s target range could provide scope for higher-than-expected shareholder returns.

On balance, ethical issues will continue to leave Imperial and the wider industry off limits for many investors. That said, potential global moves by governments to effectively ban combustibles in future could industry players seek consolidation, while a prospective dividend yield of over 5% will likely keep income investors interested.  

Positives

• Robust cashflows
• Attractive dividend yield (not guaranteed)

Negatives

• Health concerns for NGP products
• Ethical concerns leave many funds unable to invest

The average rating of stock market analysts:

Buy