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Imperial Brands says vaping sales still disappointing but cash better than expected

Trading for next-generation products has continued to be disappointing, with revenues expected to be around 30% lower than last year

Imperial Brands -

Imperial Brands PLC (LON:IMB) said sales and cash generation have been slightly better than expected in the past year but earnings are likely to be lower. 

New chief executive Stefan Bomhard, who joined at the start of July and has strengthened his executive team with a number of new appointments, said he will “share some initial observations about the business” alongside full-year results on November 17 and a more detailed strategic update before the end of March 2021.

Under the strategy of his predecessors and amid the coronavirus pandemic, tobacco revenue increasing around 1% in the year to end-September at constant currency rates, with better than expected overall volumes offsetting weaker duty-free sales.

In Next Generation Products (NGP), including its Blu vaping range, Pulze heat-not-burn tobacco and Skruf snus, the board made the decision in the past year to significantly reduce investment, after disappointing performance led to two profit warnings.

Trading for NGPs has continued to be disappointing, Bomhard said, albeit in line with low expectations, with the level of underlying losses reduced in the second half and net revenue is expected to be around 30% lower than last year at constant currencies.

Group net revenue is expected to be broadly flat on last year at constant currencies, while earnings per share will be down by around 6% at constant currencies, with foreign exchange swings imposing around a 1% headwind.

For one of the FTSE 100's highest dividend-yielding companies, underlying cash conversion was said to be ahead of expectations, benefiting from lower investment and restructuring charges, some of which will be shifted to the new financial year. 

The group said the disposal of its Premium Cigars business is on track to complete before the end of the month, with two non-refundable down payments having been received.

Shares in Imperial rose 3% to in early trade on Thursday but soon flattened off to 1,377.5p.

Analysts at Hargreaves Lansdown said expectations of growing annual tobacco revenue “would actually be a minor achievement considering the weakness in duty free sales following the collapse of international travel”.

“Its lower price products seem to be appealing to consumers during the pandemic. The group may be benefitting from its lower exposure to premium products, but management also indicates that smokers have simply been spending more on their habit. Either way, cash conversion is expected to be relatively strong, although some COVID related costs will reduce profit,” they added.

The poor NGP sales were “not too surprising” and “it doesn’t look like vaping will be driving massive growth any time soon”, the analysts said.

  --Adds shares and broker comment--

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Price: 1634.5 GBX

LSE:IMB
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Market Cap: £15.47 billion
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