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Strip-out a host of one-off items - largely associated with January's £11bn acquisition of Franco-Spanish tobacco company, Altadis - and group operating profit grew by a decent 51 per cent in the year to £2.23bn.
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But investors could be forgiven for feeling cautious about the Altadis deal. After all, it prompted a dilutive £4.9bn rights issue this year, while net debt soared by £6.8bn in the year to £11.7bn - forcing financing costs up 88 per cent to £938m. Still, chief executive Gareth Davis sounds confident, and reassured investors that there's no need for additional financing until 2010. Although scepticism persists on the subject of the group's debt. “It’s managing the risk around debt as well as it can, but it’s a highly leveraged business in a market that doesn’t like leverage,” said one analyst.
Debt worries could, however, look less significant if decent progress is made on delivering synergies from the Altadis deal. Specifically, Imperial is looking for E300m of operating efficiencies by end-September 2010, rising to about E400m by end-September 2012. However, achieving those targets won't be easy - dealing with French and Spanish unions could prove tricky and factory closures might take longer than anticipated.
But trading seems to be holding-up. Strip-out the Altadis deal, and US net revenue more than doubled to £239m. Germany also did well, with net revenue there up 8 per cent to £567m, while the rest of western Europe managed 5 per cent net revenue growth to £665m. And while the UK saw net revenue decline 1 per cent to £869m, the rest of the world operations - comprising Eastern Europe, Africa and the Middle East - saw net revenue climb 16 per cent to £1.3bn. Indeed, management says that it hasn't yet seen much sign of a slide in trading in either its mature or emerging markets. And while there's evidence of a shift from premium to value brands, Imperial is maintaining its market share.
Investec Securities expects adjusted pre-tax profit of £2.1bn for 2009, giving adjusted EPS of 150.8p.
| IMPERIAL TOBACCO (IMT) | ||||
|---|---|---|---|---|
| ORD PRICE: | 1,551p | MARKET VALUE: | £ 15,761.7m | |
| TOUCH: | 1550-1551p | 12-MONTH HIGH: | 2,416p | LOW: 1,368p |
| DIVIDEND YIELD: | 4.1% | PE RATIO: | 31 | |
| NET ASSET VALUE: | 621p* | NET DEBT: | 184% | |
| Year to 30 Sep | Turnover (£bn) | Pre-tax profit (£bn) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2004 | 11.0 | 0.69 | 61.0 | 50.0 |
| 2005 | 11.3 | 1.08 | 109 | 56.0 |
| 2006 | 11.7 | 1.17 | 122 | 62.0 |
| 2007 | 12.3 | 1.24 | 117 | 60.4 |
| 2008 | 20.5 | 0.62 | 50.6 | 63.1 |
| % change | +67 | -50 | -57 | +4 |
Ex-div:21 Jan Payment:20 Feb * Includes intangible assets £1.8bn or 179p a share |
||||
Click here for a guide to the terms used in IC results tables.
Smokers aren't likely to kick the habit simply because of tougher economic times, so Imperial's trading is likely to hold-up. But a forward PE of 10 isn't so cheap, and the debt burden won't help sentiment. Fairly priced.
Previous IC View: Fairly priced, 2,005p, 4 June 2008
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-IC-2.1.3g-prod - 17/03/2010 18:13:09 - ben.wheeler
