15th May 2024 11:47
(Alliance News) - Half-year results from Imperial Brands PLC on Wednesday were viewed as "solid" and "reassuring" but more investment in new generation products may be required to "move the dial further".
The London-based tobacco and nicotine products company, whose brands include Gauloises and Lambert & Butler, reported GBP1.49 billion in operating profit for the six months that ended March 31, down 2.6% from GBP1.53 billion a year prior.
Revenue for the half-year was down 2.3% to GBP15.06 billion from GBP15.41 billion.
Earnings per share fell 18% to 96.0 pence from 117.0p in the first half of the previous financial year.
Imperial raised its interim dividend 4.0% to 44.90p from 43.18p.
Revenue for 'next generation products', Imperial's line of vapour, heated and non-smoke alternatives, was up 17% on a constant currency basis.
As a result, the company said that it is "well set up to adapt to changing consumer preferences and regulatory requirements".
Chief Executive Officer Stefan Bomhard celebrated the strong momentum achieved in next generation products, adding that this had increased the company's confidence in delivering full-year results in line with its guidance.
Imperial expects to deliver low-single digit growth in Tobacco & NPG revenue at constant currencies, with mid-single digit constant currency growth in operating profit.
In its previous financial year, Imperial's Tobacco & NGP revenue was GBP22.66 billion, while operating profit reached GBP3.40 billion.
Citigroup analyst Simon Hales said the results were "solid", with delivery "consistent" with the recent first half trading update.
Importantly, he noted the volume decline of 6.3% in the first half was in-line with market expectations, while the positive contribution from price hikes of 8.6% was strong.
This left first half organic sales growth at 2.3% above consensus of 1.6%.
Hales expects little change to consensus financial 2024 estimates for Imperial Brands and thinks the absence of negatives will be seen as "reassuring" for investors.
Hales retains a 'buy' rating on Imperial Brands.
Derren Nathan, head of equity research, Hargreaves Lansdown explained the company is managing the "structural decline in tobacco consumption through high single-digit price rises in its traditional tobacco brands".
There's stronger growth in its next generation products such as blu vapes, but these are still a tiny part of the mix, he noted.
"It's tobacco that's still driving financial performance and management are keeping their balance on the delicate tightrope of asking smokers to pay up more for their habit without collapsing demand," he said.
Nathan noted cash generation remains strong, giving Imperial Brands confidence to increase the dividend and buyback shares.
At just six times forward earnings, and carrying a yield of 8.5% the shares are likely to be "on the radar" of income investors who "don't feel compelled to avoid the sector for ethical reasons", he thinks.
But he stressed price rises alone can't keep driving growth indefinitely.
"For the valuation to enjoy a material re-rating, the roll out of next generation products needs to accelerate. Progress is moving in the right direction but to move the dial further investment is required and investors need to be mindful of increasing regulatory scrutiny," he remarked.
Shares in Imperial Brands were up 4.6% to 1,964.00 pence in London on Wednesday.
By Jeremy Cutler, Alliance News reporter
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