Imperial Brands PLC (LSE:IMB) shares are trading at five-year highs in a clear sign that the tobacco giant’s strategy of delivering substantial cash returns to shareholders while transitioning to next-generation products (NGPs) is paying off.
The maker of Lambert & Butler and Gauloises cigarettes, Golden Virginia and Drum tobacco, and Blu vapes confirmed a 4.5% hike to its dividend in today’s annual results and set out guidance for the new financial year.
Despite top-line revenues declining by 0.2% for the past year, the FTSE 100 group remains hugely cash-rich as sales of its NGPs, which include vapes, heated tobacco and oral nicotine pouches, begin to scale.
Imperial Brands has significant price-setting advantages given the addictive qualities of its products. The FTSE 100-listed company has successfully navigated the changing market landscape despite being precluded from investment from ethically focused investors.
“Changing lifestyle habits and tougher regulation perennially overhang this sector, but in the meantime Imperial Brands continues to play the cards it has been dealt with aplomb,” stated Richard Hunter, head of markets at Interactive Investor.
He added: “Despite the obvious concerns of changing habits and a more immediate drag from some large investors either unwilling or unable to buy tobacco shares, Imperial is maximising its current power, and the market consensus of the shares as a buy continues to reflect this bounty.”
Russ Mould, investment director at AJ Bell, stated: “Despite a big push from governments, healthcare representatives and campaigners in society to curb the number of people smoking and vaping, Imperial Brands’ results would suggest the industry isn’t disappearing any time soon.
“The positive response to the results took its share price to a five-year high and extended the year-to-date gains to 35%.”
Rae Maile, analyst at Panmure Liberum, said most of the headline numbers, including dividend and share buyback, had been announced in a pre-close statement, though details showed tobacco profits "a fraction below estimates" but Logistics, interest costs and tax rates all better than expected.
The outlook for the current year is for adjusted operating profit growth “close to middle of mid-single digits”, with low-single digit profit growth in the first half.
Earning per share growth will be “at least high single digits” with a currency headwind of just 1-2%.
Maile said 9% constant currency growth, less 1.5% for FX, would suggest around 319p of EPS, which is slightly ahead of the consensus forecast of 315p prior to today.