ii view: Imperial Brands on track and confirms new share buyback

Photo: Piotr Swat/SOPA Images/LightRocket via Getty Images.

Full-year trading update to 30 September

• Continues to expect full-year combustible net revenue growth of low single digits
• Continues to expect full-year Next Generation Products (NGP) net revenue growth in double digits
• Continues to expect full-year adjusted operating profit to rise by 3-5%
• Expects full-year free cashflow of more than £2.2 billion, up from a previous estimate of "at least" £2.2 billion

ii round-up:

Imperial Brands (LSE:IMB) today maintained optimism about full-year forecasts, with the tobacco company increasing its share buyback programme for the year to 2027.

Increased revenues for combustibles (cigarettes and Next Generation Products (NGP) such as vapes) continue to underpin forecast growth in annual adjusted operating profit in 2026 of up to 5%. Free cashflows of more than £2.2 billion, up from management’s previous estimate of at least £2.2 billion, now assist a year ahead buyback of £1.5 billion, up from £1.45 billion for the year to late September 2026.

Shares in the FTSE 100 company rose 4% in UK trading having come into this latest news down by a fifth so far in 2026. Rival British American Tobacco (LSE:BATS) has fallen by 5% during that time. The FTSE 100 index is up by almost 5% year-to-date.

• Invest with ii: Top UK Shares | Share Tips & Ideas | Cashback Offers

Imperial's brands include JPS, Golden Virginia, Winston, Rizla and blu vapes. The group flagged a sixth consecutive year of tobacco net revenue growth. Cigarette price rises of 3% during the first half helped offset volume declines of 1.5%.

There's been double-digit percentage growth for NGP's during the past year, with market share gains for each of the vape, heated tobacco, and oral nicotine categories.

Broker Jefferies repeated its ‘buy’ rating on the shares following the update, highlighting what it sees as an attractive valuation. Results for the year to 30 September are scheduled for 17 November.

ii view:

Headquartered in Bristol, Imperial sells its products globally but concentrates on the five key markets of Germany, the UK, the USA, Spain and Australia. Headed by former finance chief Lukas Paravicini, Imperial is pursuing an improvement plan to 2030 including evolving its challenger approach, growing scale for the NGP business and focusing on costs.

For investors, previous management caution regarding the war in the Middle East and its impact on performance should not be forgotten. A former decision by the UK government to implement a phased banning of combustible sales will likely be repeated in other countries. A forecast price/earnings (PE) ratio above the three-average may suggest the shares are not obviously cheap, while fears about the exact long-term impact of NGP products on users’ health persist.

• Dividend stocks to beat rising inflation
• The Income Investor: why I like this FTSE 100 share’s 6% dividend yield
• Budget 2026: what might Burnham and Healey have in store?

More favourably, high cash generation continues to underpin shareholder returns, with cumulative capital returns since the fiscal year 2021 exceeding £11 billion. Net revenues for the NGP business are growing. Cost savings of £320 million out to 2030 continue to be targeted, while the group’s adjusted profit-to-net debt ratio is expected to come in at the lower end of management’s 2-2.5 times target range.

On balance, ethical issues will continue to leave Imperial and the wider industry off limits for some investors. That said, potential global moves by governments to effectively ban combustibles could see industry players seek consolidation opportunities. A prospective dividend yield of over 6% should also 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