ii view: shareholder returns remain major focus for Imperial Brands

Full-year trading update to 30 September

• Trading in line with management expectations
• Announced a new £1.1 billion share buyback programme for the financial year 2024

ii round-up:

Imperial Brands (LSE:IMB) is 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.

For a round-up of this latest update announced on the 5 October, please click here.

ii view:

Separated out of conglomerate Hanson in 1996, Imperial Brands today competes against rivals including British American Tobacco (LSE:BATS), Philip Morris International Inc (NYSE:PM), and Scandinavian Tobacco Group. In early 2021 laid out a series of new five-year strategic goals including beefing up its focus on its top five tobacco markets of the UK, Germany, Spain, the US, and Australia, and taking a more disciplined approach to its vaping or NGP products.

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The early period of the plan concentrates on strengthening the business and investing in its five priority markets, along with simplifying the organisation and targeting cost savings. The second phase sees Imperial focus on shareholder returns and generating value for shareholders.

For investors, the recent announcement by the UK government to implement a phased banning of UK cigarettes sales, a core product for the company, is not to be overlooked. Other countries may follow New Zealand and the UK and do the same. A UK crackdown on Next Generation Product sales also warrants consideration, as do fears for the exact long-term health impact of NGP products. Finally, rising interest rates and their impact on the group’s £10.24 billion of net debt as of late March should not be forgotten. 

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On the upside, Imperial's high cash generation continues to underpin shareholder returns, with its 2024 buyback programme of £1.1 billion up from £1 billion this year. A five-year group performance improvement programme is still being pushed, group net debt levels remain within management’s comfort range, while a planned increase in NGP sales should help counter expected falls in traditional cigarettes.  

For now, and while ethical issues will continue to deter many investors, a forecast dividend yield of more than 8% will likely remain an attraction for many income investors. 

Positives

• Five-year strategic plan being pursued
• 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