Tobacco manufacturer Imperial Brands (IMB) says group sales will be ‘broadly flat on last year’ and thus ‘slightly ahead’ of guidance given at the half-year results in May, reassuring news that ignited a 2.4% share price gain to £13.97 on Thursday.
Nevertheless, relatively new chief executive Stefan Bomhard has an arduous task in reviving growth at the cigarettes company given a regulatory pushback on smoking and increased public health awareness.
NO ALARMS & NO SURPRISES
Explaining today’s modest share price rally at Imperial Brands, AJ Bell Investment Director Russ Mould commented: ‘After a torrid 12 months, featuring two profit warnings, a change in chief executive, a dividend cut and a 25% slump in the share price, shareholders could have been forgiven for approaching Imperial Brands’ trading update with a degree of trepidation, so they will be delighted by the absence of any new, nasty surprises.’
The Winston-to-West maker said its tobacco business has ‘continued to perform well despite an uncertain and disrupted trading environment’, with smokers spending more on tobacco in the US and ‘several’ key European markets in spite of lockdown restrictions; it seems those addicted to smoking will always find a way of getting their fix.
IN-LINE EARNINGS
Annual underlying cash conversion will be ‘ahead of our original expectations’, although Imperial Brands has incurred some extra manufacturing costs caused by Covid-related restrictions and increased provisions for both stock and bad debts.
‘As a result, we expect constant currency earnings per share will be down by around 6%, in line with current market expectations,’ assured the Bristol-headquartered company.
NGP SALES DRAG
Unfortunately, Imperial Brands reported disappointing sales of next generation products (NGP). Though NGP losses reduced in the second half as the company reduced investment spend, Imperial Brands is guiding towards a 30% slump in full year NGP revenue.
Bomhard will outline his initial thoughts about the state of the business when results are published in November. And the NGP business is likely to be front and centre for the review as sales continue to disappoint.
Fortunately for Imperial Brands, cash generation is better than expected and the company is getting a big slug of cash from selling its premium cigars business.
That at least gives new boss Bomhard options with regards to paying down debt and supporting recently reduced dividends, although an elevated forward dividend yield of 9.7% indicates the market is far from convinced Imperial Brands’ future payments are entirely safe.
