Imperial Brands: On Track as It Expands Launch of Next-Generation Products in Europe

Imperial Brands IMBBY 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.

Management expects first-half operating income to be in line with the GBP 1.2 billion generated in the same period last year, excluding currency movements. We anticipate several one-time factors are likely to have affected first-half growth, including heightened spending around marketing launches, the unwinding of volume growth that occurred during the periods of COVID-19-related social restrictions, and the exit from Russia. Imperial has been active in launching new products in next-generation categories in the first half of the year, and launched its Pulze heated tobacco device and the accompanying iD sticks, as well as the Blu 2.0 vaping product in some European markets. Unlike many of its peers, Imperial has already followed through with its pledge to exit Russia, and we expect this to have a modest negative impact on revenue of just over 1% in the first half.

As we noted at the end of fiscal 2022, Imperial’s new strategies relating to spending focus, cash generation and capital allocation appear to be paying off. Its cigarette market shares appear to remain stable and the firm has completed over half of its GBP 1 billion in share repurchases this year. We continue to believe Imperial is undervalued and should provide relative downside protection in the event of continued market volatility.