Company Reports

Wide-moat Imperial Brands issued first-half fiscal 2024 results, with 2.8% adjusted operating profit growth on a constant currency basis hitting management’s guidance. The company maintained full-year guidance for tobacco and next generation products, or NGP, net revenue growth of low single digits, and companywide adjusted operating profit growth of around midsingle digits on a constant currency basis. As a result, we’re unlikely to significantly change our pre-print NGP net revenue growth and operating profit growth guidance of 1.9% and 6.2%, respectively, or our GBX 2,900 and $36 fair value estimates. Although shares were up 5% on the results, we continue to believe that the current market valuation undervalues the future cash flows of the business, providing an attractive investment opportunity.

Wide-moat Imperial Brands issued a preliminary first-half fiscal 2024 trading update, indicating that the company was on track to reach half-year and full-year guidance. For the first half of the year, Imperial maintained guidance of positive adjusted operating profit growth from 2023 on a constant currency basis. For the full year, the company continues to guide to tobacco and next-generation products, or NGP, net revenue growth of low single digits and companywide adjusted operating profit growth around midsingle digits. Our forecast is in line at 1.9% and 6.2%, respectively. We are reiterating our GBX 2,900 and $36 fair value estimates and wide moat rating and continue to believe the current market valuation undervalues the future cash flow of the business, providing an attractive investment opportunity for long-term investors.

Stefan Bomhard unveiled a five-year strategic plan in 2021 that will concentrate Imperial's investments geographically and on emerging categories that are likely to become the largest profit pools in the future. The plan essentially recognizes Imperial's place in most markets—it is a fast follower, rather than a leader. This makes Imperial a different investment proposition than its Big Tobacco peers, particularly Philip Morris International, which is investing in growth and moving away from the secular decline of the cigarette industry. Imperial, on the other hand, is likely to be the company more exposed to cigarettes, and although it should trade at a discount to its peer group, Imperial should remain a highly profitable and cash-generative business.

There were few surprises in Imperial Brands' full-year fiscal 2023 results, as the company released a trading update in October that indicated that full-year performance would be in line with management's guidance and our forecasts. We are reiterating our GBX 2,900 fair value estimate and wide moat rating, while raising our ADR valuation to $36 from $34 to account for the stronger U.S. dollar, and we continue to believe the current market valuation provides an investment opportunity for long-term value investors.

Stefan Bomhard unveiled a five-year strategic plan in 2021 that will concentrate Imperial's investments geographically and on emerging categories that are likely to become the largest profit pools in the future. The plan essentially recognizes Imperial's place in the marketplace—it is a fast follower, rather than a leader, in most markets. This makes Imperial a different investment proposition than its Big Tobacco peers, particularly Philip Morris International, which is investing in growth and moving away from the secular decline of the cigarette industry. Imperial, on the other hand, is likely to be the company more exposed to cigarettes, and although it should trade at a discount to its peer group, Imperial should remain a highly profitable and cash-generative business.

Wide-moat Imperial Brands reported a preliminary fiscal 2023 trading update indicating that the full-year performance will be in line with management's guidance and our forecasts. The market reacted positively, with the stock up almost 4% as of the close of trading on Oct. 5, most likely due to the announcement of increased share repurchases in the next fiscal year. We are reiterating our GBX 2,900 fair value estimate and wide moat rating, and continue to believe the current market valuation undervalues the future cash flows of the business and provides an attractive investment opportunity for long-term investors.

Imperial Brands reported first-half fiscal 2023 results that beat our estimate of operating income, although turnover was a little light. This was a decent quarter and Imperial appears to be delivering on its operational turnaround and seems likely to meet management's guidance this year and beyond. We are reiterating our GBX 2,900 fair value estimate and believe the current market valuation undervalues the future cash flows of the business and provides an attractive investment opportunity for long-term investors.

Imperial Brands reported a trading update ahead of the release of its first-half fiscal 2023 results next month that indicated the business is tracking in line with the company's previous guidance and our expectations. We may have overestimated the currency tailwind to operating income in the first half of the year, and have lowered our estimates for the second half for that reason, but this has minimal impact on our GBX 2,900 per share fair value estimate.

Imperial Brands reported preliminary fiscal 2022 results that were in line with our expectations, reflecting the shift in strategy from a business chasing new revenue streams to focusing on optimising cash from the company's legacy operations. Imperial continues to benefit from weakness in pound sterling, which has benefited the market valuation of the stock this year, but we think upside remains. Our investment case for Imperial is based on a very low valuation, an attractive 7% dividend yield, and belief that the market is underestimating the duration that Imperial's core cigarette business can continue to generate cash and excess returns on capital. Although that thesis is proving to be slow to play out, several performance metrics in these results support our conviction in it, including strong cash conversion and sensible capital allocation. We reiterate our fair value estimate of GBX 2,900 and believe that, at the close of trading on Nov. 17, there is substantial upside to Imperial's stock. Even after strong outperformance this year, Imperial trades at under 10 times our estimate of fiscal 2023 earnings.

Stefan Bomhard unveiled a five-year strategic plan in 2021 that will concentrate Imperial's investments geographically and on emerging categories that are likely to become the largest profit pools in the future. The plan essentially recognizes Imperial's place in the marketplace—it is a fast follower, rather than a leader, in most markets. This makes Imperial a different investment proposition than its Big Tobacco peers, particularly Philip Morris International, which is investing in growth and moving away from the secular decline of the cigarette industry. Imperial, on the other hand, is likely to be the company more exposed to cigarettes in future, and although it should trade at a discount to its peer group, Imperial should remain a highly profitable and cash-generative business.

Imperial's strategy on operational focus and financial improvement was apparent in the firm's impressive interim 2022 results. Operating profit was slightly above our forecast, with volume and revenue in line with our forecast, confirming that volume trends and market share appear to have stabilized in the company's core markets. We are retaining our GBX 2,900 fair value estimate, and believe the market valuation as of the close of business on May 17 undervalues the stock.

Stefan Bomhard has a new mantra for Imperial Brands: focus. The CEO unveiled a five-year strategic plan in 2021 that will concentrate investments both geographically and on emerging categories that are likely to become the largest profit pools in the future. We think the plan makes sense because it essentially recognizes Imperial's place in the marketplace--it is a fast follower, rather than a leader, in most markets, but a highly profitable one with strong cash flow generation potential that should drive returns to shareholders higher in the coming years.

We have updated our cash flow forecasts and valuations of our tobacco coverage following the announcement from several leading cigarette manufacturers that they intend to change their strategy in the Russian Federation in light of sanctions imposed by the west. While we consider events to be materially negative to cash flows at least in the short term, we think the market has overstated the valuation impacts. We are lowering our valuation of Philip Morris International (PMI) to $103 from $108, and of British American (BAT) to GBX 3,900 from GBX 4,000.

Imperial Brands' preliminary financial results for fiscal 2021 were broadly in line with our forecasts, confirming our thesis that Imperial still possesses pricing power, and with a more focused approach to investment, will be able to continue to generate strong cash flow in the medium and long term. We are retaining our GBX 2,900 fair value estimate, and we see a lot of potential upside to Imperial.

Imperial Brands' preliminary financial results for fiscal 2021 indicated that the momentum achieved in the first half of the fiscal year continued in the second. The strategy to stabilize market share appears to be bearing fruit; this is in line with our thesis that with a more focused approach to investment, Imperial will be able to continue to generate strong cash flow in the medium and long term. Until more details are provided, we are retaining our GBX 2,900 fair value estimate, and we see a lot of potential upside to Imperial.

Stefan Bomhard has a new mantra for Imperial Brands: focus. The new CEO unveiled a five-year strategic plan that will concentrate investments both geographically and on emerging categories that are likely to become the largest profit pools in the future. We think the plan makes sense because it essentially recognizes Imperial's place in the marketplace--it is a fast follower, rather than a leader, in most markets, but a highly profitable one with strong cash flow generation potential that should drive returns to shareholders higher in the coming years.

After four years of lousy underperformance, Imperial Brands finally delivered some validation for our investment thesis in the first half of fiscal 2021. We think Imperial's model is intact, but performance has suffered from misplaced organic investments for several years. Although we believe the company has a wide economic moat, Imperial is not the highest-quality franchise in the tobacco group, and shareholders should not expect it to lead next generation, or NGP, categories. However, we retain our belief that if the company can sustain this volume and margin performance going forward, the future cash flows of the business are materially undervalued. The lukewarm market reaction to the strong report, however, indicates sentiment remains very low. We have increased our effective tax rate assumption from the second half of fiscal 2021 onwards by 100 basis points annually to account for the Biden administration's plans to increase U.S. corporation tax, but this offsets a slightly better-than-expected performance in the first half, and we are retaining our GBX 2,900 fair value estimate.

Stefan Bomhard has a new mantra for Imperial Brands: focus. The new CEO unveiled a five-year strategic plan that will concentrate investments both geographically and on emerging categories that are likely to become the largest profit pools in the future. We think the plan makes sense because it essentially recognizes Imperial's place in the marketplace--it is a fast follower, rather than a leader, in most markets, but a highly profitable one with strong cash flow generation potential that should drive returns to shareholders higher in the coming years.

Stefan Bomhard has a new mantra for Imperial Brands: focus. The new CEO unveiled a five-year strategic plan that will concentrate investments both geographically and on emerging categories that are likely to become the largest profit pools in the future. We think the plan makes sense because it essentially recognizes Imperial's place in the marketplace--it is a fast follower, rather than a leader, in most markets, but a highly profitable one with strong cash flow generation potential that should drive returns to shareholders higher in the coming years.

Stefan Bomhard has a new mantra for Imperial Brands: focus. The new CEO unveiled a five-year strategic plan that will concentrate investments both geographically and on emerging categories that are likely to become the largest profit pools in the future. We think the plan makes sense because it essentially recognizes Imperial's place in the marketplace: it is a fast follower, rather than a leader, in most markets, but a highly profitable one with strong cash flow generation potential that should drive returns to shareholders higher in the coming years.