- New NGP products in US
- Growth at Spanish distributor
Cigarette giant Imperial Brands (IMB) grew adjusted operating profits in its first half and maintained full-year guidance as it raised prices and was boosted by progress with next-generation products (NGPs).
In an update ahead of the release of its interim results on 15 May, the Davidoff and Gauloises owner pointed to "strong tobacco pricing" as it made cigarette market share gains in the US, Spain and Australia, but lost ground in Germany and the UK.
On the NGP (vapes, heated tobacco, oral products) side of things, management expects net revenue to grow at a rate in the mid to high teens on a constant currency basis in the first half. The company launched new products in the US across the three NGP categories in the period.
Guidance is for tobacco and NGP net revenue growth at a low single-digit rate this financial year, and operating profit growth at a rate in the mid single digits. In the first half, growth at the company's Spain-listed distributor Logista also helped the operating profit performance.
Elsewhere, management flagged that foreign exchange fluctuations would mean a 5 per cent and 3.5 per cent headwind on first-half and full-year adjusted operating profit, respectively. This was worse than consensus forecasts.
The shares trade at six times forward consensus earnings, the same rating as at London-listed peer British American Tobacco (BATS). The investment thesis on the tobacco stocks is well-rehearsed by this stage, with share buybacks a key attraction as the secular decline in smoking rates continues. On the buyback front, Imperial Brands is on track to complete a £1.1bn programme by the end of October. BATS confirmed last month that it would restart buybacks, with £700mn-worth of shares set to be purchased this year.
Last IC view: Hold, 1,776p, 14 Nov 2023
