Imperial Brands Share Discussion Threads

[marktime1231] 30/5/2022 12:14

Why? Why do you prefer debt reduction to buybacks in all circumstances?

Why would you continue to pay down debt which costs <3%, why would you continue to rapidly drive down borrowing to a sub-optimal level which Bomhard says is around 2 x ebitda, when the cost of paying dividends is >7%? The economics are clear while shares are so cheap.

Why not divert some of the surplus cash to buybacks, you get twice the bang for your buck? When the headline in the analyst report is no longer the "mountain of debt" negative sentiment why keep paying it down so sharply?

A buyback is on the cards so that ESG-minded institutions can sell down without dumping on the market, something which has probably been depressing the share price, partly why we are on a p/e of 7. A buyback is what some analysts and big institutional holders want, they have been asking for it. A buyback may or may not directly strengthen the share price, but it is a bit perverse to say the board is selfishly minding their own interests by consolidating value.

A buyback concentrates the value of remaining shares and increases pro-rata the dividend-per-share, payments can be progressed without increasing the gross cost of the dividend. Permanently. Embedding dividend progress. That is a good thing, isn't it? Especially if you are here for the long term.

Bomhard has promised to consider capital returns when net debt is approaching 2 x ebitda. He may continue to chip away at debt to reinforce IMBs credit worthyness and image of financial prudence. But not at the £1B+ pa rate he is cutting debt at the moment. Not forever. You may be more comfortable with even lower debt (I suspect Bomhard is himself similarly conservative), but there is a level at which it becomes less of a priority. There has to be a limit, where is yours?

By capital returns I am hoping he means buybacks and no splashing out special dividends. No need to ramp up the distributions. He does not need to bribe the market because the yield is already about the best you can get.

A buyback makes good sense for all sorts of reasons, once you get past the notion that is not an attempt to artificially support the share price for the benefit of the board. It would, all else being equal, make the long-term dividend prospect more secure and attractive. It may or may not also support the share price.

Dismissing buybacks as always disappointing, as a fad, as an easy option, as self-interest is harsh, a bit of a prejudice actually. When debt is in control and the cost of debt is lower than the cost of divdends.

[tuftymatt] 30/5/2022 10:59

I agree Salty but it's flavour of the month right now and an easy course of action in difficult financial times globally.

[saltaire111] 30/5/2022 09:26

I’d prefer the company to continue to focus on paying down debt rather than move into buy-backs. They will not do this, of course. Boards never do. They go with whatever is best for them, personally, rather than what’s likely to be best for the company.

Salty.

[tuftymatt] 26/5/2022 10:43

Sounds like the IC is a paper version of Jim Cramer!!

[fenners66] 26/5/2022 10:37

I used to read IC - mainly stood in Tesco with nothing better to do - and watched as year after year it recommended selling Ashtead.

Then there was a break of about 12 months

Next (after years of growth) they decided to finally recommend it as a buy and conveniently omitted the years of sell recommendations.

Yes I took the Chronic Investor as a contrary indicator as well.

[gateside] 25/5/2022 22:54

Good post marktime1231

I agree that the world is ESG bonkers!

[spud] 25/5/2022 22:45

I have always held to the belief that a Sell recommendation by IC is a contrarian indicator and vice versa. This belief has served me well. spud

[marktime1231] 25/5/2022 22:22

IMB in better shape than it has been for two and a half years, my feeling is that the share price is set to keep getting stronger, not too worried by any bumps around the dividend cycle.

Investors' Chronicle, which as a matter of policy seems to be harsh on anything which doesn't agree with ESG ideals, in the person of Christopher Akers posted a Sell note over the weekend. Despite acknowledging that Bomhard's strategy appears to be succeeding, despite phenomenal debt reduction progress from super cash flow, despite the consensus view from analysts that on balance of risk/reward the outlook is a 15-20% upside.

Apart from the obvious negative of being a tobacco company Akers warns that the US FDA is moving towards a ban on menthol cigarettes, which a bit of research says could account for up 10% of that market revenues. Hmmm. The consequence of such a ban was immediately priced in when it was first mooted. 4 years ago. And they are still talking about proposals.

No mention of the excellent dividend yield. No mention of the consumer defensive quality of tobacco in the face of an inflation cycle. No mention of a possible buyback starting next year.

But Akers says "we are not yet convinced of the merits of an upgrade". The "we" is presumably the voices in his head. The "yet" is utterly bonkers. Another example where IC is telling punters to Sell a stock which has an improving share price and an improving outlook because the story is mostly good. They mean the opposite of what they conclude, ignore the ethical filter, it is a logical Buy as an investment.

[redbaron10] 25/5/2022 18:56

You may be correct on a dip over and above the dividend of 21p tomorrow but i don't think it will stay at depressed levels for long imho.These defensive staples have some demand now, and investors are looking for entry levels into stocks like this, so hopefully that will limit any damage.As you say,we'll see.These are volatile markets now central banks are actively raising rates to stem inflation, and everything's unpredictable.

[jrphoenixw2] 25/5/2022 18:26

It wouldn't surprise me if it drops notably more than the X/D tomorrow, it seems to have a habit of doing so. You might almost think there is a trading technique focused on cum-ex div stripping but I can't see interest in such in sufficient/corporate trading volumes to explain it... But, we'll see!

[watfordhornet] 25/5/2022 16:13

3 times that today leading up to XD

[philanderer] 25/5/2022 16:08

xd tomorrow morning for the 21.27p dividend

[redbaron10] 25/5/2022 13:33

With regards to traditional industries v tech,I'm not adverse to picking up SMT shares for a fiver or so, for the long term, if they retrace 60-70% from their all time high.They certainly are on my watch list but Tesla and Moderna their biggest holdings are dragging them lower at present.

[tuftymatt] 25/5/2022 13:32

Wouldn’t that be nice but for me I am really happy with the performance I have seen so far since coming aboard in early April.
A solid company with a great divi and share price growth too is the perfect combination. Time to think about adding!!

[philanderer] 25/5/2022 12:47

Goldman Sachs raises Imperial Brands to 'buy' (neutral) - price target 2,150 (1,750) pence

[sonofbanjosinger] 25/5/2022 12:05

I was listening to a Barry Norris podcast . He made a good case for reversion in traditional industrials vs tech .

[redbaron10] 25/5/2022 10:36

Yeah quite.Ken Dart had the right idea investing in tobacco at the low levels he bought in at.Don't hear much on the ESG investing principles front when it comes to big oil and tobacco in the financial media now i notice.These are hundred year old companies operating in mature markets.You know what you're getting when you buy into these companies,products that consumers will buy whatever the state of the economy and they pay healthy dividends in a low interest environment.Not to everyone's taste but they are solid,safe haven,sound investments which in these global markets is the golden ticket.

[saltaire111] 25/5/2022 09:35

Fags are back in fashion with the market. Or rather their inflation matching income is back in fashion!

Tech stocks are getting mulched and the outflows are landing in things like IMB and BATS.

Momentum building nicely now for the sector.

Salty

[saltaire111] 20/5/2022 12:58

Woodhawk- you should hear me on a bad day!

[lendmeafiver] 19/5/2022 16:31

Nowhere near as much profit in vaping products, just look at the IMB annual reports over the years to see that.

[marktime1231] 19/5/2022 12:55

redbaron I wonder then if you have been tempted by the latest monthly dividend payer i3Energy. I regret that I passed at 17.5p but now they have indexed the yield by 40% it would be tempting again at around 25p.

I did not realise vaping was cheaper ... to buy or to make ... a cardboard box containing sticks of paper versus a cardboard box with a foiled plastic wrapper containing a steel tube, bonded plastic parts, chemical reservoir, electronics and a battery etc. I am sick already of picking up discarded vaping devices around my village, there will need to be an intervention to stop it.

[woodhawk] 19/5/2022 11:22

UBS raises Imperial Brands price target to 1,780 (1,630) pence - 'neutral'

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Jefferies raises Imperial Brands price target to 1,899 (1,668) pence - 'hold'

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RBC raises Imperial Brands price target to 2,200 (2,000) pence - 'outperform'

[woodhawk] 19/5/2022 10:32

...or switch to vaping, which is cheaper?

[lendmeafiver] 19/5/2022 09:46

If it’s going to be that bad surely there is a risk that many consumers will have to trim expenditure on cigarettes at £12+ a pack.

[woodhawk] 19/5/2022 09:43

You're a real ray of sunshine!