Imperial Brands Share Discussion Threads

[speedsgh] 21/3/2018 14:09

phil - Thanks for the link. Some useful titbits there. Interesting to read Exane's view...

"The big risk for Imperial could lie in the tobacco pricing model unravelling. If IQOS as a concept starts to gain traction, with consumers gaining the belief it is much less bad for them, Imperial may not be in a position to take its ‘usual’ quantum of combustible pricing (or if it did, volume issues would be compounded). In this event, 15 to 25% profit cuts could ensue."

"The material potential cuts to Imperial’s profit portrayed in this report may never come to fruition, but to avoid them, IQOS needs to flop in Europe (we wouldn’t bet on that) and/or Imperial need to conjure up a credible HnB alternative (which is good enough from a consumer point of view, doesn’t infringe patents...etc)."

"Visibility is limited to say the least in this regard and Imperial’s NGP stance / track record does not fuel confidence. Today Imperial seems like a sitting duck to us. We downgrade to Neutral given the dimmed takeover prospects and increased risk from IQOS (and forecast no dividend growth from next year)."

[philanderer] 21/3/2018 14:01

Plenty of negative comment on Alphaville this morning (towards the end)....

[speedsgh] 21/3/2018 13:13

phil - I'm not sure anyone is suggesting otherwise. It's univerally accepted that the market (whether purely traditional tobacco or combined with new gen products) is in long-term decline.

The share price is now back at the same level as early 2014. Taking a simplistic approach:

2013 adjusted EPS: 210.7p
2017 adjusted EPS: 267.0p

2013 DPS: 116.4p
2017 DPS: 270.7p

Do those figures justify the current share price?

But of course the market is forward looking so it's all about th future. In essence all we're discussing is whether the market is currently undervaluing IMB's future prospects. If it is, therein lies the oportunity. If it isn't, therein lies the risk. Anyone got a fully functioning crystal ball?

EDIT - One point worth noting. DPS has grown at CAGR of 10% over the above period whereas adjusted EPS CAGR is c6% which would suggest that the current divdend policy is going to have to be amended at some point with lower dividend growth likely in the future.

[essentialinvestor] 21/3/2018 13:00

Hi Phil, that's the inflection point argument, where price increases no longer
compensate for lower volumes. At a guess and that's all it is, there is more at
play here. Until I did some searches on ..buy vape kits, buy heat not burn products,
did not appreciate the multitude of different product offerings in the market atm.

[philanderer] 21/3/2018 12:53

Maybe just face up to the fact that not so many people are smoking / starting smoking ?

[essentialinvestor] 21/3/2018 12:30

Found this, the device mantioned is backed by Japan Tobacco

hxxp://uk.businessinsider.com/juul-e-cig-vaping-health-effects-2018-3

[essentialinvestor] 21/3/2018 12:17

I tried to find some up to date % share figures for the UK/US market in vape,
new gen products, but was unable to discover any recent stats.

Blu was the clear market leader in the US a few years back.

[speedsgh] 21/3/2018 12:11

Certainly uncertainty over which technology will prevail amongst new gen products will affect sentiment until the picture becomes clearer. IMB have currently have all their eggs in the e-vapour camp but they could relatively easily rectify that position if it turned out that heated tobacco were to prevail over e-vapour. But isn't there also likely to be considerable consolidation of the fragmented new gen products market once the way forward becomes clear? Small companies will be acquired by the big boys and those that aren't will not survive? In the meantime (as per the CEO interview with Alison Cooper in Monday's Telegraph) I suspect conventional tobacco will be around for some considerable time, even if that market is in long-term decline. The future is all about navigating the decline in cigarettes & the switch to so-called reduced-harm poducts.

[essentialinvestor] 21/3/2018 11:51

What is happening imv, is vaping, new gen products, are being offered by
multiple companies, besides big tobacco. A quick Amazon search shows the picture
very clearly.

[speedsgh] 21/3/2018 11:46

AFAICS, on the assumption that there isn't something lurking in the background that insiders are aware of that justifies the decline and underperformance of the share price in comparison to its peers in recent months, then one of two things are likely to happen:

1. Share price will bottom and regain much of the ground lost in recent months with IMB remaining independent & continuing to churn out attractive dividends on a quarterly basis;
2. IMB will get taken out at a considerable premium to the current level.

Either way, and regardless of whether IMB is regarded as a bond proxy, the risk would appear to be swayed to the upside from the current levels. Goodness knows where the bottom will turn out to be. 2300p would represent historical yield of 7.4%, 2200p = 7.8%. Even if IMB were to decide to ditch their current dividend policy of 10% annual increases and maintain it at its current level (I have seen no speculation of this), those yields are highly attractive even in an environment of rising interest rates. Aimho. Apologies for the ramblings.

[andyj] 21/3/2018 10:35

Interesting speedsgh, personally I would be more concerned if it was a steady, considered downtrend, like BT, but a spike down is often followed by a spike up if one waits long enough.

[speedsgh] 21/3/2018 09:59

Interesting to note that the IMB share price fell c50% from its high in 1999 to its low in 2000. It did exactly the same from its high in 2007 to its low in 2008/09, down c50%. It is currently down c43% from its high in mid-2016...

[garycook] 21/3/2018 09:48

ik,BATS are doing exactly the same atm.

[irenekent] 21/3/2018 09:10

Maybe about time we had some management comment about the decline in this share. Perhaps they need to think about diversifying away from tobacco & nicotine based products. Imperial booze?, Imperial dope? Imperial Holidays? Joking aside, we need to know what is going wrong, if anything, and what they see as key to reviving the brand. A return of cash to investors via a substantial buyback and/or special dividend might help. I wonder what Woodford is saying to the company!

[rumpy pumpy] 21/3/2018 08:54

In mid Jan the new CEO of JT indicated that a speculated takeover of IMB was less likely (although he didn't rule it out)

Since then the share price has fallen by around a quarter.

At some point this comes back into play (although not necessarily with JT)

[andyj] 21/3/2018 06:44

What interests me about the fall is that it is incomparable to others that have fallen such as BT, CPI, PFG etc. Imperial have not issued a profit warning. The declining market, debt, next gen fears were all there on the way up. No, this is an unloved share in its purest sense. People see it falling, worry, hurry to sell and so on whilst analysts make up reasons why they should be sold instead of being honest and saying because they are falling because they are falling.The momentum will reverse but not yet.

[philanderer] 20/3/2018 18:22

Yes , the market is beating the management over 'no organic revenue growth' materializing.

[ptgint] 20/3/2018 16:00

I'm thinking along the same lines as stewart64 and certainly won't be topping up until I can see the share price stabilising.

[philanderer] 20/3/2018 14:44

:-O

Nigeria: Tobacco Industry Still Selling Cigarettes in Single Sticks in Nigeria, Other African Countries - Report

[philanderer] 20/3/2018 14:16

7.2% yield on an unchanged dividend .. mmmmmmmmm :-S

[essentialinvestor] 20/3/2018 14:02

Type vaping kits, or heat not burn in an Amazon UK search.
There are so many different companies I lost count.

Now whether some of these early entrants will no longer exists in years to come
remains to be seen. It's not just the big tobacco companies in this market.

[wunderbar] 20/3/2018 13:54

Yes this relentless decline is getting out of hand. To put this into perspective IMB's shareprice plummeted 47% during 2008 financial crash, the current decline equates to a 42% fall since it peaked at 4130 on 2 Sep 2017. My point here is current price 2384 is almost pricing in Armageddon circa 2008! Of course we know there's been market negativity towards tobacco stocks in recent months but in typical market fashion sentiment has gone from one extreme to another. No doubt the sector will come back in vogue at some point but management need to instil some confidence here and fast. As for the shareprice let's hope for all our sakes this is as bad as it gets. For info I topped up this am.

Whilst the current dividend ratio looks great at 7% I do wonder if the 10% year on year increase is really sustainable going forward bearing in mind they've achieved this growth for 10 consecutive years. As they say nothing lasts forever. Perhaps they're best reducing this and using surplus proceeds to bolster the business / reduce debt / instigate share buyback.

Regarding todays news re IMB looking to dispose the OTP business in the US there's no mention of how much cash this will generate. Any ideas?

[action] 20/3/2018 12:52

Power of MM.