Imperial Brands share were higher on Tuesday after the tobacco and tobacco alternative group demonstrated it is still a reliable source of income for investors.
Despite a broad decline in the number of smokers in the western world, Imperial Brands is managing to pivot and realign its business to maintain very attractive shareholder distributions.
Investors will also be pleased to see Imperial Brands can offset the impact of lower combustibles volumes with higher prices.
The company has prepared for a rapid reduction in the number of people who smoke traditional cigarettes by building a presence in alternatives such as vapes.
Traditional cigarettes still make up a large proportion of the group’s revenues, but a 20-30%% forecast increase in the sales of new-generation products shows where the business is going.
“Imperial Brands is managing to drive growth not only in its fledgling next generation brands, but also in ‘legacy’ tobacco products which still make up the lion’s share of the business,” said Derren Nathan, head of equity research, Hargreaves Lansdown.
“In aggregate, tobacco volume pressures have eased across the company’s focus markets, and despite slowing price hikes for the pleasure of lighting up, pricing has been strong. However, market share declines in Germany and the UK remain a source of concern.
“In Next Generation Products, net revenue growth is expected to land between 20-30%, suggesting a significant acceleration over the second half, boosted by a swathe of new product launches in vapes, non-tobacco options and oral pouches.
“Imperial’s execution and narrowed focus on core markets are helping it keep organic growth moving when larger rivals have been going in reverse. It’s confident of meeting expectations for the year just ended, with underlying operating profit growth firmly in the mid-single digit range.”