Imperial Tobacco (IMT) chief executive Alison Cooper says the Reynolds-Lorillard merger should be cleared by the US competition authorities any day now. The three-way deal involves Imperial buying Lorillard's cigarette factory, national sales force and - most importantly - a number of brands that should take its US market share from 3 per cent to 10 per cent. If those market share figures shift, the group could possibly claim another tobacco brand as a deal-sweetener. But Ms Cooper says that will act as a "proxy of cash" rather than "another brand to grow".
The current deal terms hand Imperial the Kool, Salem, Winston and Maverick brands, as well as the next generation Blu e-cigarette marque. A full 15 per cent of Imperial's revenues will then come from the US, where it will be the third-largest player after Altria and Reynolds-Lorillard.
Imperial bosses are also hoping for a volume boost once the deal is complete. In the first half total tobacco volumes dipped 1 per cent, and excluding the impact of last year's destocking programme they fell 5 per cent. One problem area was Iraq, where the political and security environment deteriorated. Strip out Iraq and underlying volumes were down 3 per cent - slightly better than the industry average for Imperial's market footprint.
As usual, the group's 'Growth Brands' - which include Davidoff, JPS and Parker & Simpson - fared much better than the average, with underlying volumes up 12 per cent. Net revenues from this portfolio jumped 15 per cent, and now account for almost half of Imperial's total tobacco revenues. Market share gains are largely responsible: growth brands pushed their share up by almost a full percentage point to 6.1 per cent.
The company is also making progress with its 'cost optimisation' programme. It has clawed back £90m in costs so far this year, and hopes to generate another £85m of savings before the year-end. That helped cut the debt pile by nearly £2bn to £9.1bn, although it will rise again when Imperial shells out close to $7bn (£4.6m) for the Reynolds-Lorillard brands.
Analysts at Panmure Gordon expect adjusted pre-tax profit of £2.5bn this year, giving EPS of 200p. That compares with £2.2bn and 203p respectively in 2013-14.
| IMPERIAL TOBACCO (IMT) | ||||
|---|---|---|---|---|
| ORD PRICE: | 3,194p | MARKET VALUE: | £30.6bn | |
| TOUCH: | 3,193-3,195p | 12-MONTH HIGH: | 3,385p | LOW: 2,474p |
| DIVIDEND YIELD: | 4.1% | PE RATIO: | 16 | |
| NET ASSET VALUE: | 513p* | NET DEBT: | 175% | |
| Half-year to 31 Mar | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2013 | 12.6 | 0.64 | 38.1 | 38.8 |
| 2014 | 12.1 | 1.05 | 89.5 | 42.8 |
| % change | -4 | +64 | +135 | +10 |
Ex-div: 30 Jun** Payment: 28 May** *Includes intangible assets of £14.5bn, or 1,517p a share **Dividends will be paid quarterly. Second payment will be made on 30 September, with an ex-dividend date of 27 August. | ||||
