Shares in Imperial Brands (IMB) rose 3.2% to £16.68 to top the FTSE 100 leader board following the publication of a pre-close trading update.
Management revealed the group was on track to deliver full year results in line with revised guidance issued in March.
TRADING IN LINE
The company said it expects full year net revenue growth of between zero and 1%, adjusting for currency fluctuations, while underlying operating profit should also be around 1% higher.
Interim adjusted operating profit is expected to grow by 2% on a constant currency basis, benefiting from reduced losses in the Next Generation Product range.
The group’s gearing will improve, with half-year net debt to EBITDA (earnings before interest, taxes, depreciation and amortisation) forecast to be 2.4x against 2.6x in 2021 due to seasonal cash flow changes, although for the full year the firm sees leverage increasing year-over-year.
A weaker tobacco performance in Europe with losses in the German and Spanish markets was offset by growth in the United States, the United Kingdom and Australia.
That reinforces the recent March 25 announcement that the group is gaining traction in the US market.
The poor performance in European tobacco markets was driven by the return of pre-Covid purchasing patterns as international travel resumed.
Management predicts European revenue will benefit from higher prices in the second half of the year.
SHARE BUY-BACK
While there was no news on either share purchases or the progress of the Next Generation Products business, analysts at JP Morgan think an announcement on a buyback could be on the horizon in November.
British American Tobacco (BATS) recently announced a scheme to buy back up to £2 billion alongside its full year results, which was well received by institutional investors.
JP Morgan expects Imperial Brands to achieve double digit compound annual growth in earnings per share in the medium term versus a mid to single digit rate for its peers.
Their forecast is based on upside from more targeted investment in Next Generation Products, margin expansion in tobacco products and the potential boost from share buy-backs.
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