Imperial Brands shares jumped on Tuesday, hitting five-year highs after the tobacco and vaping company announced its final results, revealing strong growth in its new generation products segment.
Cigarette smoking rates are rightly falling across the developed world, which poses a big problem for the major listed manufacturers. However, Imperial Brands has done well to pivot into vaping and other nicotine replacement products that now account for around 8% of revenue and may provide the company a future.
“Imperial Brands’ full-year results showed that cigarettes are continuing to fall out of fashion, with tobacco volumes declining by 4%. But this is a dynamic the group is navigating well, managing to drive revenue and profits in the right direction through a combination of strong pricing and impressive growth in Next Generation Products (NGP) such as vapes and heated tobacco, where sales were up 26.4%,” said Derren Nathan, head of equity research, Hargreaves Lansdown.
“Imperial is by no means the leader in this space, but it is a challenger, and at 8% of the total pie, it’s starting to become more meaningful. But for now, it’s still a loss-making activity.”
Although some may be optimistic about the new products, Imperial Brands’ real attraction is its high shareholder capital returns.
“Our operational delivery coupled with consistently strong cash flow generation has supported enhanced shareholder returns with increases to both our ordinary dividend and share buyback,” said Imperial Brands’ CEO Stefan Bomhard.
“We are on track to deliver five-year capital returns of c. £10bn, representing 67% of our market capitalisation in January 2021 when we launched our strategy.”
The company will return £1.25bn to shareholders through share buybacks in FY25. This is arguably the biggest draw into Imperial Brands.
Imperial Brands’ operating profit was almost flat, but EPS jumped 19% due to buybacks reducing available shares. This trend is set to benefit Imperial Brands shareholders in the years to come.