Imperial Brands Share Discussion Threads

[creditcrunchies] 09/10/2020 09:13

I can't see how the dividend will be reduced anymore sales are up like I keep saying people smoke more when they're depressed about job prospects it's a known fact. I've been a smoker and now a vaper I know this stuff from real life experience. That's why people invest in tobacco it's as defensive as food. My holdings are stuff people need to buy and gold yes it goes down with market psychology but eventually gets re-priced when the panic stops.

[spud] 09/10/2020 07:32

Nah. Dividend has just been reduced. Why reduce it again, yielding less than BATS? With the FCF and disposals, they can pay debt down within 7 years whilst keeping shareholders (the bulk of whom rely on this for income) happy.This is an income stock and, if you hold as you claim, then you would be aware of that.spud

[kiwi2007] 09/10/2020 05:35

He may also want to diversify the company. To do that in any meaningful way will probably take significant capital expenditure.
Either way my feeling is that we may well see a reduced dividend pretty soon.

[kiwi2007] 09/10/2020 05:28

The new CEO will, in a few years time, be judged by his peers not by the amount of dividend he's shelled out to shareholders but more by how much the share price has increased. It is more likely to increase by paying down debt to acceptable levels - at the moment the constant fall in the share price is telling us that the market doesn't think we are reducing it enough.

[spud] 08/10/2020 22:40

COVID-19 has produced some very clear winners and losers in the corporate world.



Food retailers have emerged from the pandemic with greater respect from customers for the way their supply chains have held up - while their employees are striding out with a greater sense of purpose after the value of what they do has been more widely appreciated.

Manufacturers and distributors of personal protection equipment have also been applauded for the way they have stepped up availability of their product while healthcare companies have won respect for the way they have rapidly sought to develop a vaccine for coronavirus.

The company reported COVID-related changes in consumer behaviour
On the downside, due to the social distancing protocols introduced around the world, companies in the leisure, entertainment, hospitality and aviation sectors are fighting for their lives.

Today another sector can be added to the group of winners - tobacco.

Anecdotal evidence from around the world has been that, as stress levels have increased due to lockdown, smokers have been partaking more in the habit.

Today, one of the world's biggest players in the sector provided hard details, reporting an increase in tobacco consumption.

Imperial Brands, the UK's market leader in cigarettes and owner of brands such as Lambert & Butler, Richmond and John Player Special, said its tobacco business had continued to perform well despite an uncertain trading environment.

It added: "We have experienced some COVID-related changes in consumer behaviour with increased overall demand against our expectations, as consumers appear to have allocated more of their spend to tobacco, as well as some demand shifts between different markets and channels.

"This has resulted in better than expected volumes, driven by improved volume trends in several key European markets and in the US.

"These positive trends have helped to offset relatively weaker market volumes in the duty-free channel and in some traditional summer tourist destinations, where reduced travel has impacted demand.

"Overall, we expect tobacco net revenue to increase by around 1% at constant currency."

The news comes after many years during which Bristol-based Imps - whose other brands include Golden Virginia rolling tobacco and Rizla cigarette paper - and its established competitors have seen a slow, gradual drop in tobacco consumption in established markets such as Europe and the US.

It backs anecdotal evidence from a number of countries - including the US, Ireland, Poland, Australia and Singapore - that stress related to the pandemic has led to an increase in smoking.

Some local authorities in the UK, such as Kent County Council, have also noted an increase in smoking.

Action on Smoking & Health (ASH), the anti-smoking charity, has also flagged its concern that local authorities may be spending less on programmes aimed at helping smokers kick the habit.

Yet it may not be as straightforward a situation as the Imps update implies.

British American Tobacco, the world's second-biggest tobacco company, said in June that its sales in some emerging markets had been hit by the pandemic as strict lockdowns affected the ability of some smokers to get out to the shops.

And all the major tobacco companies have been hit by the decline in international air travel and the accompanying drop off in sales of their products at duty-free outlets.

Meanwhile, because Imperial's product portfolio contains more "economy" brands such as Regal and Lambert & Butler, it may have benefited from any so-called down-trading by consumers from premium to cheaper brands if they are worried about their income.

This is something currently being hotly debated in the industry.

BAT has insisted that it has seen little evidence of down-trading to date but Imps has said for some months now that the phenomenon is clearly happening in markets such as Australia.

One theory is that, with consumers smoking on their own at home rather than with friends on an evening out, they are less particular about the brand that they are seen to be smoking.

William Ryder, equity analyst at the stockbroker Hargreaves Lansdown, said: "Imperial expects to grow full-year tobacco revenue, which would actually be a minor achievement considering the weakness in duty-free sales following the collapse of international travel.

"Its lower-price products seem to be appealing to consumers during the pandemic.

"The group may be benefitting from its lower exposure to premium products, but management also indicates that smokers have simply been spending more on their habit."

Not that the pandemic has been all good news for Imps.

The company has spent much money and time during recent years trying to build a position in "next-generation products", chiefly Blu, its vaping product and Pulze, its heated tobacco product.

But it admitted today that recent trading in these products, thanks partly to a "significant" reduction in investment, had been "disappointing".

It said net revenues from nextgeneration products would be down by "around 30%" on last year.

Some of this may be partly due to the Trump administration's declaration of war on vaping a year ago but, given the strength that the likes of BAT have seen in these product categories, it may be more specific to Imps.

Recognising this, the new chief executive Stefan Bomhard - who joined the company three months ago from the international motor dealer Inchcape - has turned to an industry outsider to pep up performance.

Murray McGowan, who has been appointed group strategy and transformation director, is a former consultant at McKinsey and was until 2017 the UK managing director of Costa Coffee.

He was one of a trio of new hires announced today.

Alicia Forry, of broker Investec, said: "It is encouraging to see that Mr Bomhard has brought in external talent to the executive committee.

"The new strategy and transformation director, Murray McGowan, the new chief people and culture officer, Alison Clarke, and the new manufacturing and supply chain director, Javier Huerta, have all come from well-known companies outside of tobacco.

"It is a positive sign that Mr Bomhard is able to attract solid talent into Imperial Brands."

The bigger questions for investors are these.

Firstly, whether Imps can maintain the momentum in its traditional tobacco products as economies return to normality after COVID and secondly, whether it will be able to turn around its lacklustre performance in next generation products.

The share price, down 27% since the beginning of the year, tells you there is a fair bit of scepticism.

spud

[daneswooddynamo] 08/10/2020 18:29

As Benjamin G said in the short term the stock market is a voting machine and in the long term a weighing one

[minerve 2] 08/10/2020 18:09

My own DCF calculations which are conservative (IMO) for the next 10 year period value this at £38 a share and British American Tobacco at £34, Philip Morris at $76.

[spud] 08/10/2020 18:03

The stock is chronically undervalued, that I think we can all agree on. Fair value I seem to recall is in excess of £25. Trouble is, tobacco along with oil are seen as dirty/sin stocks and aren't being held by the ESG brigade of fund managers.I think that could well change when the fund returns continue to shrink. spud

[minerve 2] 08/10/2020 17:54

daneswood

I've seen some good analyst work that shows total addressable nicotine net revenue pool accelerating yet alone dying. Yes, it is driven by NGP but IMB are more than capable of delivering product when the market becomes clear. What has happened in the US with NGP is good IMO. Open system vapes need to be squashed out of the market. Countries want tobacco around because it is a great revenue generator for their governments. What some countries say and do are two different things and with COVID stretching government financing world wide I can't see governments wanting to kiss goodbye to revenue that assists with fighting COVID and delivering other services. They don't have the luxury of taxing middle classes etc.. etc..

[daneswooddynamo] 08/10/2020 17:44

Let’s face it if the death of core tobacco is much exaggerated this stock is much too low!

[minerve 2] 08/10/2020 17:39

As daneswood* has said: they have just cut the dividend and are in the process of selling some assets to raise money.

Here we are, a stock that has a PE of 5, receives 20% FCF to its SP, has plenty of cash to pay the dividend yielding around 10%, has maintained revenue through COVID, and can pay down its debt roughly to the tune of £1Bn a year, and the market marks it down .5% on confirmation that it can deliver this.

Well, Mr Market is stupid. If there is any evidence that markets are not efficient it must be this. IMB can buy ALL its equity back with 7 years if it wanted.

Other shares are up when most of them will see their revenues fall, the dividends remain strained and the balance sheets become more indebted. COVID is sticking around - it isn't going to leave with Santa.

Well, good luck to Mr Market, I'll stick with tobacco. :)

[essentialinvestor] 08/10/2020 16:38

None of us know the exact future. The new CEO takes
absolutely no prisoners(familiar with Inchcape) and if he considers radical measures are needed
they will be taken. How that looks in practice I don't know.

[daneswooddynamo] 08/10/2020 16:34

the recent dividend cut which saves 600 million quid a year is going to pay down the debt. That’s why they have cut it as some investors wanted them to start focusing on it

[spud] 08/10/2020 16:11

True they haven't been, but with new management in place, this is clearly their objective and with the FCF it is achievable within 7 years.

Zero point cutting dividend, as the price will merely drop to reflect the current yield.

spud

[essentialinvestor] 08/10/2020 15:55

IMB are not paying down debt - it's clearly shown in their last 3 years of financial statements- and that's with cash from Logista stake reduction.

I have very little doubt there will be znother dividend cut.
That may zlrezdy be largely fsctored in.

[spud] 08/10/2020 15:49

Kiwi - So why the dividend remark when the company has loads of FCF to pay down debt? Surely if you've been invested for so long, you'd be fully aware of this?

spud

[kiwi2007] 08/10/2020 15:15

Spud - Not a throwaway remark! I am invested and, unfortunarely, have been for some time.

[brianbrain] 08/10/2020 15:01

Told ya to give the new geezer a chance - the tone of his statement is already more encouraging than years of drivel from previous CEO. Gl all

[lonrho] 08/10/2020 14:28

Topped up as well. Accounts are usually kitchen sinked when a new CEO starts and the provisions can be slowly released in future years to make the new incumbent look good. In this case they have written down stocks and debtors just to get back down to analyst forecasts. This means that in reality they have probably beat forecasts.

[garycook] 08/10/2020 12:37

Topped up here today with GSK dividend money for a 10% yield.Rude not too.

[lendmeafiver] 08/10/2020 11:39

Very pleasing update today and signs that the new broom is already brooming.

[minerve 2] 08/10/2020 11:23

Thanks spud. :)

[spud] 08/10/2020 11:21

Stock of the Week: Imperial Brands Tobacco giant is one of the highest-yielding stocks in the FTSE 100 despite a cut in the dividend earlier this year
James Gard8 October, 2020 | 10:43AM

For the latest stock of the week we asked our Twitter followers which high-yielding FTSE 100 stock we should write about and they have chosen tobacco firm Imperial Brands (IMB) above other dividend stalwarts like BP, Legal & General and Vodafone.

Imperial Brands is one of only three UK companies covered by Morningstar that has both a wide economic moat and a five-star rating, which means that its shares are significantly undervalued. Analyst Philip Gorham assigns a £34 fair value estimate to the company’s shares, more than double the current price around £13.

The company has been traditionally sought after for its defensive qualities and reliable dividends payouts. But in May the company announced a dividend cut, following many FTSE companies down that path, as part of first-half financial results for the year ended March 31, 2020.

It declared a dividend of 41.7p per share, a 33% fall from the 62.56p paid to shareholders in the same period last year. The company said that this cut was part of further attempts to reduce debt and that it is maintaining its progressive dividend policy – essentially the payouts rise and fall depending on how well the company does, rather than the previous commitment to a fixed dividend. This change was decided in 2019, so the company had already taken steps to adjust its dividend policy before coronavirus caused chaos in the UK equity income space.

Despite the dividend cut, Imperial yields over 13%, one of the highest in the FTSE 100, as the share price has maintained a downturn trend this year despite a minor recovery from the March market collapse.

Smokers Are Good Customers
Morningstar analysts think that Imperial has a wide economic moat, or sustainable competitive advantage, because smokers are loyal to its brands, the largest manufacturers benefit from economies of scale and tight regulation in the industry keeps competitors at bay and market shares stable. The nature of the product itself creates loyalty, Gorham says – “a majority of smokers attempting to quit fail to do so”, especially in premium segments where Imperial operates.

While the tobacco industry is usually thought of as recession-proof, it has gone through something of an existential crisis in recent years and that partly explains Imperial’s share price slide from £35 five years ago to £13 today. What the companies call “next-generation products” such as vaping were supposed to help firms (and smokers) manage the transition away from traditional cigarettes. But a crackdown on vaping in the US has stalled expected growth in this area.

Morningstar’s Gorham says that “government intervention is an omnipresent threat” in the industry and investors have to be prepared for a rough ride in share price terms. In its latest trading update on October 8, Imperial said it expected next-generation revenue to be down 30% this year, while tobacco revenue is expected to rise 1%. The pandemic, while boosting cigarette sales generally (people in lockdown have been smoking more), has hit duty free sales because of the collapse in international air travel.

Among Morningstar-rated funds, Imperial makes up over 6% of the Silver-rated M&G Global Dividend Fund and over 4% of the Jupiter Income Trust, which also has a Morningstar Analyst Rating of Silver.

spud

[minerve 2] 08/10/2020 11:20

COVID is reducing the likes of PM and its iQOS from stealing market share as lockdown measures and reduced visits to shops result in consumers sticking with what they know. I don't see it effecting IMB in any great way that PM would like - at least anytime soon. I do hold all four tobacco companies (US/UK) so the risk of company specific performance is somewhat mitigated as far as my holding is concerned.