6th Oct 2022 15:03
(Alliance News) - Imperial Brands PLC shares were on the march on Thursday in London, with investors cheering the news of a new GBP1 billion share buyback.
The Bristol, England-based tobacco firm announced a GBP1 billion share buyback programme, and said including dividends, annual capital returns are expected to exceed GBP2.3 billion. This is about 13% of its current market capitalisation, it noted.
AJ Bell investment director Russ Mould said this figure is "astonishing".
"Companies buy back shares when they think their stock is high, so Imperial Brands allocating GBP1 billion for its share buyback programme running to September 2023 gives you a clear indication of what it thinks about its current market value," he continued. "It is gaining market share and is also bringing down the ratio of net debt to earnings despite still investing in the business to make it more competitive in the future."
Shares in the Davidoff and Rizla owner were 2.4% higher at 1,941.50 pence, and is up a staggering 30% in 2022.
"News of a fresh GBP1 billion buyback at Imperial Brands will be welcomed by investors and is the culmination of work done over the last two years to get a tight grip on capital allocation and increase focus into core business areas," Matt Britzman, equity analyst at Hargreaves Lansdown, said.
"The two year 'strengthening' phase has just come to an end looks to have yielded some results, with leverage back at levels supportive of increased shareholder returns. Markets were unsurprisingly happy to hear the news, given shareholder returns for tobacco companies are really the only material case for investing for now."
Imperial also said trading in its financial year ended September 30 was in line with expectations.
"Targeted investment in our five largest combustible markets which account for around 70% of operating profit has driven an improvement in aggregate market share," Imperial said.
Those five markets are US, UK, Germany, Spain and Australia.
Richard Hunter, head of markets at interactive investor, noted: "There has been an improvement in aggregate market share across these countries, with the recovery of international travel resulting in a return to the purchasing patterns - such as duty free - of pre-pandemic times."
Hunter said Imperial is "well on track" for its five year plans.
"In the meantime, the adjustments to the overall financial strength of the group are already washing through in terms of increased profit and shareholder returns," he added.
Looking ahead, Imperial expects net revenue and adjusted operating profit to grow by around 1% in constant currency, in line with previous guidance.
In financial 2021, it reported pretax profit of GBP3.24 billion, with revenue of GBP32.79 billion.
AJ Bell's Mould added: "Investors look for so-called defensive companies which do well no matter the state of the economy, and Imperial Brands has become the poster child for this category.
"Smoking and vaping is addictive and unhealthy, so it is by no means a perfect company. Yet for investors without morals Imperial Brands has been a rare gem of a stock this year, with its share price up 20% year-to-date, significantly outperforming the FTSE 100 index which has fallen nearly 6%."
By Paul McGowan; [email protected]
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