6th Apr 2022 18:06
(Alliance News) - Imperial Brands PLC ended Wednesday as the best performer on London's blue chip index after the tobacco firm backed its annual guidance.
It closed 3.1% higher at 1,665.98 pence each in London on Wednesday, but has risen only 1.3% in 2022.
Imperial - which owns the Rizla rolling papers brand, Gauloises cigarettes and the Blu e-cigarettes range - forecasts a "broadly flat" first-half revenue performance as its troubles in Europe were offset elsewhere.
Matt Britzman, equity analyst at Hargreaves Lansdown, said: "As we enter the second year of Imperial Brands' 5-year strategy, focus remains on improving market share in core markets - the US, UK, Spain, Germany and Australia - which account for around 70% of profits. Trends seen last year seem to be continuing, growth in US, UK and Spain is progressing, but Germany and Australia remain tough cookies to crack."
Imperial said net revenue for the six months ended March 31 is expected to be broadly flat annually on a constant currency basis, in line with expectations.
"This reflects a weaker tobacco performance in Europe, which offsets growth in other regions. Europe's performance has been driven by the return to pre-Covid purchasing patterns as Northern Europeans resume international travel, as well as price phasing in some markets. However, price increases during the latter part of the first half will support a stronger revenue performance in the second half," the FTSE 100 listing explained.
Interim adjusted operating profit is expected to grow by around 2% on a constant currency basis, benefiting primarily from reduced losses in the Next Generation Product range, which includes Blu. The tobacco performance, meanwhile, will be weighted to the second half.
In the first half of financial 2021, it reported net revenue of GBP3.57 billion. For the whole of that year, it reported revenue of GBP7.59 billion, as well as an organic adjusted operating profit of GBP3.57 billion.
Imperial said it was on track to deliver full-year results in line with revised guidance issued in March. It forecasts a full-year net revenue performance ranging from flat to 1% growth on a constant currency basis. It expects adjusted operating profit growth of around 1%.
UBS also expects the firm's revenue to be flat to 1% growth.
"Given the low valuation and history of profit disappointment we view this update as positive overall," UBS added.
HL's Britzman said: "Key for any tobacco company in today's world is how they're going to transition away from the increasingly unpopular classic tobacco products and build out an offering of next generation products.
"Imperial Brands pretty much scrapped their plans and started from scratch a year or so ago when the new strategy announced. Focussing now on heated tobacco products in Europe and its blu vape brand in the US. We're still yet to hear any real details on how these are progressing, except the fact losses in the division are expected to reign in slightly."
Due to Wednesday's guidance of flat to 1% growth, Britzman noted the firm needs to see "some movement" on its next generation products soon - which would give investors "something to get excited about again."
Imperial Brands said consumers have responded positively to the pilot launches of its Pulze heated tobacco system in Greece and the Czech Republic and improved consumer marketing for its Blu vapour product in the US.
"We are making good progress against our strategic objective of building a sustainable, consumer-centric Next Generation Product business and we will provide an update on our next steps at the interim results. First-half NGP revenues are expected to be slightly ahead of the prior period, driven by growth in Europe," the company said.
Britzman said: "In the meantime, though, a 9% dividend isn't bad to be sitting on but it'd be nice if the investment case was based on more than just a lofty yield."
It plans to report results for the first half on May 17.
By Paul McGowan; [email protected]
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