9th Apr 2024 13:21
(Alliance News) - Analysts took comfort from Imperial Brands PLC's trading statement on Tuesday, which suggested no imminent threat to its dividend and raised the possibility of further share buybacks.
In a trading update ahead of its interim results, scheduled for May 15, the Bristol, England-based cigarette and vape maker confirmed business is in line with its guidance for the first-half and its full financial year, saying both tobacco and next-generation-product revenue growth is ahead of a year before.
Imperial Brands also said it is on track to complete its GBP1.1 billion share buyback programme by October 29. Imperial said it has completed GBP604 million in buybacks so far under the programme, reducing its share capital by 3.7%.
"We remain committed to delivering a material reduction in the share capital base over time," the company said.
Imperial shares were up 0.2% to 1,736.00 pence early Tuesday afternoon in London, giving the FTSE 100 constituent a market capitalisation of GBP15.04 billion.
Imperial on Tuesday confirmed earlier guidance for low single-digit percentage growth in adjusted operating profit at constant currency in the six months that ended March 31. In the first half of financial 2023, adjusted operating profit was GBP1.72 billion, up 0.8% at constant currency from a year before.
The improvement in operating profit this year was supported by stronger growth in both tobacco and NGP net revenue compared to a year before, Imperial said.
NGP net revenue growth is guided at a mid- to high-teens percentage at constant currency for the first half.
In combustibles, meaning cigarettes and cigars, market share gains in the US, Spain and Australia offset declines in Germany and the UK, the company said. The five countries are Imperial's priority markets for combustibles.
Looking ahead to the second half of financial 2024, Imperial said results will be supported by price increases in its tobacco products made in the first half, plus further NGP growth.
Citi analyst Simon Hales commented: "Imperial Brands [first half] trading update is reassuring, and the group is on-track to meet its full-year guidance for [low single digit] revenue growth and operating profit close to the middle of its 3.5%-to-6.5% range."
"In-line with its objectives, overall market share in the group's top 5 markets is stable and the business has taken solid pricing to underpin [first half] and full-year 2024 delivery."
The only negative is "slightly worse" foreign exchange guidance, he noted.
Imperial is now guiding for FX to be a negative 5% headwind to earnings before interest and tax in the first half and negative 3.5% for the full-year, compared to 0% to negative 1% previously, he pointed out.
As such, Hales has lowered his 2024 earnings per share forecast by 2% and reduced his share price target to 2,010p from 2,050p. Hales retains a 'buy' rating on Imperial Brands.
"On-going share buyback support and the solid tone of the statement should provide reassurance to investors," he thinks.
Derren Nathan, head of equity research, Hargreaves Lansdown agreed.
"This statement should provide some reassurance to investors who may be considering Imperial's value credentials. There appears to be no imminent threat to the high single-digit dividend yield, and the continued strength in cash generation could pave the way for further share buybacks once the remaining GBP0.5 billion of the current program is completed."
Nathan explained Imperial is "eking out further growth, by imposing further price increases on smokers."
"So far management seems to be getting the balance right against the backdrop of a declining market, but there are still volume pressures in certain markets," he noted.
He also highlighted progress with its next generation products, such as vapes and heated tobacco.
First-half sales growth in this division is expected to be in the mid-to-high teens, he noted.
"But these products are still a relatively small part of the picture. It's too early to say if they can be a viable replacement for the shrinking tobacco business," he added.
By Jeremy Cutler, Alliance News reporter
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