Imperial Brands PLC (LSE:IMB) has been handed a new price target of 2,550p – up from 2,300p – by Credit Suisse, which indicates more than a 40% potential upside including dividends.
The global investment bank gave the tobacco brand an ‘outperform’ rating, insisting that recent market share development is encouraging, with good pricing and profit growth potential.
Imperial can grow its tobacco profits and brands West, Davidoff, Gauloises and JPS by low-single digits – between 1% and 5% - in the next decade added the bank.
Credit Suisse’s new Tobacco Model indicates future global profit growth prospects in combustibles, while new management team can avoid missteps of the past, which included next-generation product (NGP) losses.
Imperial’s NGP business is small compared to rivals British American Tobacco and Philip Morris International.
Credit Suisse predicts that Imperial’s NGP sales will double to 6% of total sales by the decade-end.
The price target reflects a price-to-earnings multiple of 8x and is broadly in line with “Imperial’s five-year 12m forward P/E average and a ~15% premium to the current 12m forward P/E, reflecting our expectations of an acceleration in profit growth and material capital returns.”
Potential risks include downtrading in key markets, excessive excise duty hikes, market share loss and regulation - potential menthol or flavours ban and nicotine cap, for example.
Imperial’s shares were trading 0.4% lower at 1,889.5p.