ii view: Imperial Brands sticks with forecasts and raises dividend

First-half results to 31 March

• Total revenue up 0.8% to £14.72 billion
• Adjusted net revenue up 1.8% to £3.73 billion
• Currency adjusted operating profit up 0.6% to £1.64 billion
• Interim dividend up 4% to 83.36p per share - paid in two equal instalments
• Previously announced £1.45 billion share buyback programme to October 2026 ongoing
• Adjusted net debt up 6% to £10.52 billion

Guidance:

• Full-year combustible net revenue growth of low single digits
• Full-year Next Generation Product (NGP) net revenue growth of double digits
• Full-year adjusted operating profit to rise by 3-5%

Chief executive Lukas Paravicini said:

"We have made a positive start to the execution of our evolved 2030 Strategy, combining consistent operational and financial performance with tangible progress on our transformation.

“While staying laser-focused on in-year delivery, we are also making progress on self-help activities to drive efficiency and our long-term transformation to build the capabilities which will underpin our future growth.”

• Our Services: SIPP Account | Stocks & Shares ISA | See all Investment Accounts

ii round-up:

Imperial Brands (LSE:IMB) today reported profit marginally shy of City expectations, although the cigarette and vape firm did repeat hopes for annual profit growth of up to 5%.

First-half revenue minus government taxes on a constant currency basis rose 1.8% to £3.73 billion, driving currency adjusted operating profit up 0.6% to £1.64 billion. Analysts had expected profit of £1.66 billion. A 4% hike in the interim dividend to 83.36p per share was a little higher than most predicted.

Shares in the FTSE 100 company improved 1% in UK trading having come into these latest results down around a tenth so far in 2026 but down over 20% from the recent multi-year high. US tobacco company Turning Point Brands Inc (NYSE:TPB) has had a similarly volatile 2026 so far. The FTSE 100 index is up almost 3% year-to-date.

Imperial’s combustible tobacco and Next Generation Product (NGP) include vape brands including JPS, Golden Virginia, Rizla and blu.

The UK Bristol headquartered company continues to expect gains in revenues for both traditional and NGP's through 2026, although it warned of a more uncertain economic outlook given the war in the Middle East.

Product price rises of 3% during the half-year helped offset volume declines of 1.5% for combustible tobacco items, leaving revenues up 1.5%. A 7.5% revenue gain for NGP was aided by market share gains across the three arenas of vape, heated tobacco and oral nicotine.

Just over £800 million was returned to shareholders via share buybacks during the period, with the previously announced £1.45 billion programme ongoing.

Unadjusted operating profit for the period fell by just over a third to £925 million, hindered by healthcare costs relating to 2015 under the Delaware legal settlement and continuing restructuring costs.

A full-year trading update is likely to be announced early October ahead of annual results on 17 November.

ii view:

Founded in 1901, Imperial today sells globally but 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. The group’s 2030 strategy includes evolving its challenger approach and growing scale for the NGP business. Global competitors include British American Tobacco (LSE:BATS), Philip Morris International Inc (NYSE:PM) and Altria Group Inc (NYSE:MO).

For investors, cautious management outlook comments in relation to the Middle East should not be ignored. A forecast price/earnings (PE) ratio above the three-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 will likely be repeated in other countries, while fears about the exact long-term impact of NGP products on users’ health remain.

• Bank of England holds rates but prospect of hikes loom
• How this dividend hero delivers a market-beating yield
• Merchants Trust interview: high-yielding shares and looking outside FTSE 100 for income

On the upside, high cash generation continues to underpin shareholder returns, with cumulative capital returns since the financial year 2021 totalling £11.5 billion. Net revenue for the NGP business continues to grow. Cost savings of £320 million per year by 2030 are being targeted, while an adjusted profit-to-net debt ratio of 2.4 times is expected to fall to 2.0 times come the financial year end.

In all, 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 the future could trigger industry consolidation, while a prospective dividend yield of around 6% should 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