Company Reports

Fiscal 2026 is nearing its end, and Imperial Brands will release results in October. Shares have fallen 20% year to date, severely underperforming its tobacco peers. While it reported 2% net revenue growth in the first half, concerns around share losses have intensified.

Imperial Brands has positioned itself as a fast follower in next-generation products while strengthening its share in its most important markets. This makes sense, given its relatively smaller size compared with peers like Philip Morris International and British American Tobacco, which leaves it a smaller budget for innovation. Although this means Imperial will be more exposed to cigarettes (we forecast NGP will contribute just 6% of tobacco and NGP net sales in fiscal 2030), it also means that it can maximize its free cash flow generation and returns to shareholders.

Imperial Brands has positioned itself as a fast follower in next-generation products while strengthening its share in its most important markets. This makes sense, given its relatively smaller size compared with peers like Philip Morris International and British American Tobacco, which leaves it a smaller budget for innovation. Although this means Imperial will be more exposed to cigarettes (we forecast NGP will contribute just 6% of tobacco and NGP net sales in fiscal 2030), it also means that it can maximize its free cash flow generation and returns to shareholders.

Imperial Brands reported 1.8% net revenue growth and 1.3% adjusted operating profit growth for tobacco and next-generation products at constant currency in its first-half fiscal 2026. It maintained full-year guidance of low-single-digit revenue growth and 3%-5% AOP growth.

On April 14, Imperial Brands provided a trading update on first-half results, guiding toward low-single-digit growth in tobacco and next-generation product, or NGP, net revenue. The company will release detailed first-half results on May 12.

Tobacco remains Imperial Brands' main value driver at 96% of fiscal 2025 tobacco and next-generation products (NGP) net revenue. Tobacco volume declines moderated last year, as Imperial's value brands benefited from trade-down. Meanwhile, NGP revenue is nascent but rapidly growing.

Imperial Brands has positioned itself as a fast follower in next-generation products while strengthening its share in its most important markets. This makes sense, given its relatively smaller size compared with peers like Philip Morris International and British American Tobacco, which leaves it a smaller budget for innovation. Although this means Imperial will be more exposed to cigarettes (we forecast NGP will contribute just 6% of net sales in fiscal 2030), it also means that it can maximize its free cash flow generation and returns to shareholders.

Imperial Brands has positioned itself as a fast follower in next-generation products while strengthening its share in its most important markets. This makes sense, given its relatively smaller size compared with peers like Philip Morris International and British American Tobacco, which leaves it less financial capacity to lead innovation. Although this means Imperial will be more exposed to cigarettes (we forecast NGP will contribute just 6% of net sales in fiscal 2030), it also means that it can maximize its free cash flow generation and returns to shareholders.

In fiscal 2025, Imperial Brands' tobacco and next-generation products net revenue grew 4.1% at constant currency. Robust tobacco pricing offset lower volumes, while NGP growth benefitted from oral nicotine gains in the US and Europe. Adjusted operating profit margin held steady at 44%.

With fiscal 2025 ending, CFO Lukas Paravicini will soon take the reins from CEO Stefan Bomhard. Imperial Brands guided to constant-currency growth of low single digits and mid single digits for tobacco and next-generation product net revenue and group-adjusted operating profit, respectively.

Imperial Brands has positioned itself as a fast follower in next-generation products while strengthening its share in its most important markets. This makes sense, given its relatively smaller size to peers like Philip Morris International and British American Tobacco, which leaves it less financial capacity to lead innovation. Although this means Imperial will be more exposed to cigarettes, it also implies that it can maximize its free cash flow generation and returns to shareholders.

Imperial Brands announced 3.2% net revenue growth for tobacco and next-generation products at constant currency in its first-half fiscal 2025. It maintained previously issued guidance for the full year. Separately, CEO Stefan Bomhard announced plans to retire later this year.

Imperial Brands is at the end of a five-year strategic plan launched in 2021 that looked to position the firm as a fast follower in next-generation products while strengthening its share in its most important markets. This makes sense, given its relatively smaller size to peers like Philip Morris International and British American Tobacco, which leaves it less financial capacity to lead innovation. Although this means Imperial will be more exposed to cigarettes, it also implies that it can maximize its free cash flow generation and returns to shareholders.

Imperial Brands provided an updated strategy focused on its approach as a challenger to its larger global peers. Operationally, it expects to focus on maintaining tobacco growth in its five core markets and building scale in next-generation products, or NGP.

Imperial Brands announced fiscal 2024 earnings that delivered on promises that results would be weighted toward the back half of the year. For fiscal 2025, the company expects single-digit net revenue growth and mid-single-digit adjusted operating growth, both on a constant-currency basis.

Imperial Brands is at the end of a five-year strategic plan launched in 2021 that looked to position the firm as a fast follower in next-generation products while strengthening its share in its most important markets. This makes sense, given its relatively smaller size to peers like Philip Morris International and British American Tobacco, which leaves it less financial capacity to lead innovation. Although this means Imperial will be more exposed to cigarettes, it also implies that it can maximize its free cash flow generation and returns to shareholders.

Imperial Brands released a preliminary fiscal 2024 trading update indicating that full-year results would be in line with prior guidance for low-single-digit net revenue growth and mid-single-digit adjusted operating growth, both on a constant currency basis.

We’ve reduced our long-term growth forecast for Imperial Brands to more accurately reflect the company’s focus on maximizing cash flow at the cost of reduced investment in next-generation productions. Our fair value estimate falls to GBX 2,300/$29 from GBX 2,900/$36. This implies a 2024 price/adjusted earnings ratio of 9.5 times, enterprise value/adjusted EBITDA of 7.5 times, and 6.5% dividend yield. These multiples are at the lower end of the tobacco peer group due to Imperial's weaker long-term growth from its fast-follower strategy.

Imperial Brands is in the middle of a five-year strategic plan launched in 2021 that looked to position the firm as a fast follower in next-generation products while strengthening its share in its most important markets. This makes sense, given its relatively smaller size to peers like Philip Morris International and British American Tobacco, which leaves it less financial capacity to lead innovation. Although this means Imperial will be more exposed to cigarettes, it also implies that it can maximize its free cash flow generation and returns to shareholders.

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.