An improved performance from next generation products helped Imperial Brands PLC announce returns to shareholders which topped market hopes, analysts said.

On Tuesday, the Davidoff cigarette and Rizla rolling paper owner said it intends to return around £2.8 billion to shareholders in the financial year to September 30, 2025, compared with £2.4 billion in the financial year just ended.

This will comprise a share buyback of £1.25 billion, up 14% on-year from £1.1 billion, and cash dividends of around £1.5 billion.

The buyback plans were ‘slightly’ higher than the £1.2 billion consensus, according to Citi analyst Simon Hales, and is likely to be ‘well received.’ Hales felt the trading update was ‘reassuring.’

Imperial Brands intends to ‘reprofile’ the ordinary dividend for the new year.

‘This will result in two quarterly dividends of 54.26 pence per share to be paid in December 2024 and March 2025,’ it said.

For financial 2026, Imperial Brands will change its payout profile to four equal quarterly dividends. ‘To create the base for future quarterly payments, we intend to pay two interim cash dividends of 40.08 pence per share in June and September 2025. These payments will be higher than would otherwise have been the case and also include a further 4.5% year-on-year increase,’ the company added.

For the year just ended, it expects a total dividend of 153.43 pence per share, a 4.5% rise on the prior year.

In response, shares in Imperial Brands rose 4.0% to 2,233.00 pence in London on Tuesday morning. The wider FTSE 100 index was down 1.0%.

Imperial Brands said it is trading in line with expectations, hailing ‘growth’ for its tobacco and next generation products.

‘At constant currency, we are on track to deliver in line with our full-year guidance with an acceleration in tobacco and NGP net revenue growth versus last year and group adjusted operating profit growth close to the middle of our mid-single digit range,’ Imperial Brands said.

It expects next-gen products growth of 20% to 30% at constant currency.

‘Our results this year have benefited from the launch of innovative products with new formats under the blu brand, new iSenzia non-tobacco heat sticks and new flavours in the modern oral segment. Our entry in the US oral nicotine category with the launch of the Zone range of pouches has been well received and supported a stronger NGP performance in our US business,’ Imperials Brands said.

Richard Hunter at interactive investor noted while the NGP unit is still loss-making, there are clear signs of progress, noting the predictions of 20% to 30% growth.

But ‘whether such growth can be maintained at a pace which can even begin to offset the decline in combustibles remains a core question overhanging the sector, let alone whether the current levels of margin and profitably can be replaced,’ he added.

AJ Bell’s Russ Mould noted the reduction in losses from NGP also means the company can return more of the cash thrown off by its sales of traditional cigarettes to shareholders through dividends, notably moving to quarterly payments, and share buybacks while also reducing debt.

Hunter agreed, noting the tobacco majors continue to benefit from the extraordinary cash generation which their sector enables.

‘Tobacco remains a product which has inelastic demand, providing the ability to raise prices without unduly dampening demand and this pricing mix has seen the benefit as a result, with falling volumes more than offset by higher prices,’ he observed.

Hunter explained the move to drive NGP growth comes as the pressure on traditional tobacco products mounts, driven by changing lifestyle habits and the ‘burden of regulatory censure’, with some investors reluctant to invest in tobacco companies at all on ethical grounds.

Imperial Brands expects to report results for the financial year just ended on November 19.

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