Shares in Imperial Brands (IMB) were up more than 4% to £19.53 in morning trading despite the tobacco and next-generation product maker reporting a 2.3% fall in first half revenue to £15.06 billion.

Investors may have been cheered by the firm's ability to raise tobacco prices and the increase in NGP (next-generation product) revenue for the six months to March.

GROWING MARKET SHARE

Three out of five of Imperial Brands’ markets are growing – the US by 5 basis points (0.05%), Spain by 50 basis points (0.5%) and Australia by 10 basis points (0.1%) – offsetting declines in the UK and Germany.

Over the past six months the tobacco firm has launched new products in all categories, including entry ‘into the US oral nicotine market with the new zone brand' and three ‘Sense Hubs’ in Liverpool, Hamburg, and Shenzhen.

INTERIM DIVIDEND INCREASE

It was good news for shareholders as the tobacco firm confirmed its ongoing £1.1 billion share buyback programme for this year and its ambition to deliver three-year cumulative returns of £6 billion.

The company also announced an increased interim dividend up 4%.

EXPERT VIEWS

Jefferies analyst Owen Bennett said today's update would do nothing to help sentiment as the investment case has ‘little to do with fundamentals and is more about cash returns’, where despite leverage being at the low end of the company's range there was no new news.

Also, on the fundamentals, which can't be completely ignored, there were ‘areas of possible concern’, said Bennett, the main ones being the company is no longer taking combustible share across its top five markets and US volumes are now looking pressured, although European volumes were ‘somewhat encouraging’.

Russ Mould, investment director at AJ Bell said: ‘The harm caused by smoking means the sector is likely to remain under regulatory pressure – particularly in the West – and like its peers, Imperial Brands is aiming to mitigate this risk by diversifying into sales of so-called NGPs such as vaping and e-cigarettes.

‘These are growing rapidly but they still represent a minimal proportion of group revenue and remain loss making. Traditional tobacco products are doing the heavy lifting when it comes generating the cash to underpin generous dividends and share buybacks.

‘For now, these are about keeping shareholders on board but eventually there may be impatience over a share price which has barely budged in five years.’

LEARN MORE ABOUT IMPERIAL BRANDS

DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The authors of this article (Sabuhi Gard) and the editor (Ian Conway) own shares in AJ Bell.

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