Conviction in Imperial Brands’ operational outlook is “lessening” according to Jefferies.
The broker slashed its target price to 1,680p from 1,993p, while maintaining its hold recommendation on the stock.
Jefferies notes that share development is no longer broad-based, but largely driven by the US, with a risk that gains begin to slow in this market.
UK risks are building, Jefferies added, with taxes rising and the UK government announcing plans to distribute free vapes, which “doesn’t bode well” for proposals in the UK Control Plan.
“Alongside the UK, there are also other headline risks in the coming months,” including a potentially negative outcome on its court appeal to its US vape denial, menthol and nicotine rule changes planned by the Food and Drugs Administration and EU tobacco tax derivative.
“With operational concerns building, cash returns-which had always been central to the thesis anyway- are now arguably even more important,” said the broker.
Competitor British American Tobacco is the “worst performing tobacco stock” according to Jefferies, with BAT bearing the brunt of pressure on the sector-wide sell-off, accentuated by its debt and lack of buyback.
However, the broker sees upside from here, with the stock "already pricing in a lot of bad."
Jefferies help its buy recommendation on BAT, with a target price of 4,100p.