Bank of America has upgraded Imperial Brands PLC (LSE:IMB) to 'buy' from 'neutral', arguing the market has overreacted to a collapse in the tobacco group's Australian business.
The bank kept its price objective at 3,200p, implying around 20% upside, and said the roughly 13% share price fall since April offers an attractive entry point.
Imperial now trades on about 7.6 times forward earnings, down from around 9 times before its 14 April trading update.
BofA said first-half results were distorted by temporary one-offs rather than any deterioration in the underlying business.
Australia is the crux of the argument.
The bank estimates the country knocked two to three percentage points off group operating profit in the first half after revenue there fell by roughly 45% to 65%.
But Australia now accounts for only about 1% of tobacco and next-generation product sales, down from around 3% a year earlier, sharply limiting the damage from here.
Next-generation products are the industry term for vapes, heated tobacco and nicotine pouches.
BofA is confident Imperial will hit guidance of 3% to 5% operating profit growth this financial year, forecasting 3.2%, in line with consensus.
It sees upside to next year's consensus, pencilling in 4.4% against the market's 3.4%.
Support comes from savings on the disposal of a Taiwanese factory and the closure of a German manufacturing plant, worth about 1% to operating profit in 2027.
In the US, competition will keep pressuring market share in the near term, though duty drawback should become a meaningful tailwind from the second half of 2027 and build through 2028.
Africa and the Middle East are emerging as growth contributors. Excluding Australia, constant currency operating profit across Africa, Asia and Central and Eastern Europe grew about 13% in the first half.
BofA expects cash generation to fund substantial buybacks, underpinning compound annual earnings per share growth of about 10% between 2026 and 2030, alongside a dividend yield of roughly 6.5%.
The shares rose 1.3% to 2,706p.
