Imperial Brands Share Discussion Threads

[jrphoenixw2] 06/10/2022 11:17

Thanks for that Fenners at 7755; elegantly illustrated.
As well as providing market liquidity vs funds with share/sector (over)-weightings, it also provides liquidity vs offloading by funds that have increasingly puritan ES+G remits.

[fenners66] 06/10/2022 11:12

I added excerpts from the notes above , there is a bit more info in the accounts.

[jrphoenixw2] 06/10/2022 11:04

Helms-Burton Act = economic/trade sanctions on Cuba. The law is over 25 years old now so I'm curious who is still around finding grounds under it for action.


I'm also curious why IMB haven't any Provision set aside for it. Do they consider said claims to be SO without merit?

[action] 06/10/2022 10:54

I am holding since 3500p. What shame.

[action] 06/10/2022 10:52

Here we go 1 billion buyback. History repeat itself. BOD making same mistakes rather than reducing debt on high int rate in the background. They should be called damaging directors instead of managing directors

[spud] 06/10/2022 10:48

Yes, it's all so obvious but the institutional pressure allied to the greed for yet higher director remuneration bonuses (higher eps) always leads companies down these blind alleys. If they paid off debt, they would be more profitable and could afford to pay bigger dividend increases. BUT, and this is the biggie for directors, they wouldn't be able to reward themselves as handsomely. Reminiscent of the Roman elite verses The Mob. spud

[fenners66] 06/10/2022 10:42

There are other examples
funds being withdrawn
death /retirement benefits
funds being moved to lower cost funds
shares outperforming and becoming too high a weighting...

[fenners66] 06/10/2022 10:40

"ValueHurts
6 Oct '22 - 08:45 - 7742 of 7754

So who exactly is overweight?"


ALL of them !

Think about it

We buy a share , we think its great vfm and pays huge dividend.
We keep it for years and do very well , we make the decision.

Institution buys the share as part of a £1bn fund.
Market slumps but "our " share holds its own because it Really is good vfm

Suddenly Expensive Investment Co finds that the good share is too high a weighting in its portfolio.
Rules say no more than X % allowed in any one stock otherwise its too much risk

Joe Bloggs who works for Expensive Investment co has to decide , does he break rules and risk his job?
Or keep the amazing investment that gives returns to people he does not know and has never met ?

No brainer , sell , sell , sell .

Now wouldn't that be easier if you knew you had a guaranteed buyer of £4m a day ?

[fenners66] 06/10/2022 10:31

philanderer so we all should be.
does not mean they can't pay down debt instead of buybacks.

Before anyone else jumps on with the "if you don't like it sell comment"

its a bit like watching your favourite football team , scoring a goal and parking the bus.
(a la Mourinho)
they still win
but you would rather they played like Man City these days and went on to win 5 or 6

[saltaire111] 06/10/2022 10:29

Fenners completely nails it in his (or her) post above.

Salty

[philanderer] 06/10/2022 10:27

Happy to hold .

[fenners66] 06/10/2022 10:27

More curiously as I was trawling the interim accounts for the borrowing detail - which was not there,
I inadvertently got down to

US HELMS-BURTON LITIGATION

filed on 6 August 2020

"Treble damages are automatically available under Helms Burton. Although the filed claim is for unquantified damages, we understand the claim could potentially reach approximately $365 million, "

"Imperial is pursuing a motion to dismiss the filed claim and, the Claimants having been granted leave to amend their claim a second time, Imperial filed a motion to dismiss the second amended complaint in April 2022. A decision on Imperial's motion to dismiss is not expected until the third quarter of 2022 at the earliest. In the event the motion to dismiss is denied, the court has set a schedule for further proceedings, with trial commencing in July 2023. "

"No provision has been made for potential liabilities related to Helms-Burton claims."

That's just some of it ......
There is other large outstanding litigation that I had not noticed before..

Now what if that claim is successful ? What does that do to the share price - even if it does get allowed to pass to trial ?

BB could look overpriced then , especially if they have to borrow funds to pay any claim !

Whereas debt paid off , makes the next debt cheaper due to less leverage.....

[tomleafs] 06/10/2022 09:58

I agree fenners that there are other ways management could have allocated the capital... you could always send their IR team an email with your suggestions?
Chairman, based on FY21 figures of adj. net debt £8,615 / adj. EBITDA £3,840m = 2.2x if we plug in 2x which assumes they really are at the low end then adj. net debt could be hovering somewhere around £7.7bn currently (assuming earnings stay constant). The second part of your question is for the management to answer. ATB

[fenners66] 06/10/2022 09:39

tomleafs - the buyback will only reduce shares by about 5.5% once completed.
so that dividend not paid to that 5.5% will only be available in a year's time.

But that in itself draws attention to the jam today or jam over the next 14 years ?

To increase the dividend this year by 5.5% would cost £73m
The buyback to achieve that in a year's time will cost c £1000m


But what if they pay down debt instead ?

They had £1000m of 9% notes due Feb 2022 - 9 percent !! Lets assume that has been paid....

Leaves among others
GBP600m 8.125% notes due March 2024
GBP500m 5.5% notes due September 2026

So I put it to them that -
1, increase the dividend on current shares NOW by 5.5% cost £73m
2, Use £626m to pay off the 8.125% debt (its was showing £626m on last years bal sheet)
3, Use £301m to pay down 5.5% notes
4, Total cost £1000m - the same as the buyback.

Effect

Higher dividends +5.5% Now
Lower borrowings -£927m this year
Lower interest - reduced by £67m this year (cash cost almost pays for the dividend ! )
Higher profit - can they offset vs other losses ? Either way post tax + £53m
Add £53m Profit after tax adds 5.5p EPS
Lower future cost of debt - because of lower leverage
Removes finance commission cost of renewing debt.
Saves transaction cost on buybacks.

More profitable business adds say £347m value to shares at a PE of 6.6 potential 36p per share...
Even if the Enterprise value remains the same - the reduction of debt should transfer to shares
so that could add £1 per share to share price ......

Overall that £1bn could deliver all that instead of buying back shares !

[the chairman elect] 06/10/2022 08:57

How much debt do IMB have and why are they not paying it down in a rising interest enviroment?

[dave_spencer] 06/10/2022 08:55

When do Imperial usually announce their December dividends. Based on todays RNS I think it could be a bit tasty !!

[flyer61] 06/10/2022 08:54

Yes expecting a dividend rise on Nov 15.

[tomleafs] 06/10/2022 08:52

This shareholder is happy with the announced buyback and is pleased to see management and the board doing exactly what they said they'd do, especially given the prevailing uncertainty. I note the RNS states the buyback could reduce ~5% of issued shares - I wonder whether we can now expect a dividend increase roughly in line with this too? ATB

[lyceeuk] 06/10/2022 08:45

Poor timing redbaron

[valuehurts] 06/10/2022 08:45

So who exactly is overweight? We are going from a scenario where no institution would own the shares to one where they are starting to quietly buy back in...

[fenners66] 06/10/2022 08:42

Problem is the major "shareholders" are the institutions that need the liquidity.
There seems to be a gentlemen's agreement , the insti's will mostly ignore , directors' remuneration and bonuses

and the company will ignore

paying off debt and giving dividends today instead of a promise of the same money over 20 years, and do BB to keep the insti's happy.

We are just ignored by both.

[saltaire111] 06/10/2022 08:36

Greedy directors always go for buy-backs. They personally benefit from buy backs. There is no personal benefit from debt reduction for them.

Awful. But it always happens. It is so obvious that debt reduction was a better use of capital.

Salty

[spud] 06/10/2022 08:35

Interestingly, since BATS announced their £2,000,000,000 buyback program on 14th February, the shares have fallen by 2.5%.The institutions love it though as they've been busy selling out their overweight positions.Give me one reason it'll be any different here.spud

[fenners66] 06/10/2022 08:22

"Timing of next debt repayment"

When exactly is that , for any debt?

Lets say "weighted average " life of debt is 5 years...a metric large companies trot out to calm our fears....

So some debt is due before , but even if its due in say 3 years when do they renegotiate it ?

Leave it until the last minute ? - No.
Leave it until the last year ? - Often not .

Meaning the debt is almost always refinanced well before it is due and rarely actually paid off.
Which puts them much closer (probably) to the top of this rate cycle and locking in higher rates for longer.

Also all those extra finance costs involved in commissions for arranging it - jobs for the boys? - and the write off of unamortised interest because they have not run to term.

Often these costs are passed off as "exceptional" even if they happen every time.

Meaning - it will cost millions to keep the debt gravy train going - will keep kicking the can down the road and costing shareholders money - and hiding more costs behind "exceptionals" so everyone can ignore / forget about them.....