ii view: Imperial Brands on track to bank bigger profits

Full-year trading update to 30 September

• Expects low single-digit tobacco and Next Generation Product (NGP) net revenue growth
• Expects group-wide adjusted operating profit to grow by a similar amount to last year (+4.6%)
• Further £1.45 billion share buyback programme to October 2026
• Total full-year dividend payment up 4.5% to 160.32 – paid in four equal instalments

Guidance:

• Expects total shareholder returns to exceed £2.7 billion over the current financial year to September 2026

ii round-up:

Imperial is a UK, Bristol headquartered tobacco manufacturer operating globally and employing over 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 this latest trading update announced on the 7 October, please click here.

ii view:

Started in 1901, Imperial today sells globally although concentrates on the five key markets of Germany, the UK, the USA, Spain and Australia. Europe generated most operating profit in 2024 at 39%, followed by the Americas at 32%, Africa, Asia, Australasia, and Central Eastern Europe (AAACE) 21% and group distribution the balance of 8%. 

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Management goals under a five-year strategic plan started in early 2021 include simplifying the organisation and targeting cost savings. Global competitors include British American Tobacco (LSE:BATS), Philip Morris International Inc (NYSE:PM) and Altria Group Inc (NYSE:MO).

For investors, market share losses for key markets Spain and the UK were flagged. 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. Fears about the long-term impact of NGP products on users’ health persist. The NGP business continues to generate losses, while a forecast price/earnings ratio above the three-year average may suggest the shares are not obviously cheap. 

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On the upside, high cash generation continues to underpin shareholder returns, with cumulative capital returns from the fiscal year 2021 to 2025 reaching £10 billion. Plans to simplify and cut costs include a pending decision about whether to sell or close its Langenhagen factory in Germany. Expected growth in full-year adjusted operating profit by a similar amount as last year will potentially leave it up around 4%, while group net debt as of late March fell 1% to £10.47 billion. 

In all, ethical issues will continue to leave Imperial and the wider industry off limits for many investors. That said, the possibility of governments banning combustibles in the future could spark another round of industry consolidation, while a forecast dividend yield of over 5% will likely still attract income seekers.  

Positives

• Focus on costs
• 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