Imperial Brands Share Discussion Threads

[marktime1231] 28/9/2023 13:21

Barclays spotting that IMB's ability to compensate for volume decline with price growth, cash flow sustaining the 8% dividend and ongoing buybacks, makes it look cheap at this share price A little support welcome, let's hope for a push from some divi reinvestment tomorrow. Whereas BAT took a double kick this morning on ex-div.

Not welcome the extraordinary voice-of-the-people rant in The Spectator accusing Sunak of being unBritish for contemplating New Zealand-like legislation to curtail young smokers. Invoking the image of Churchill smoking cigars. Let's not mention slavery eh. A more grown-up reasoned debate, observing that the rise of vaping, incentives to quit, and the general decline in smoking related illness as old puffers die out is doing the job for us without the need for Sunak to impose unpopular big stick legislation, would have been more helpful.

[action] 28/9/2023 10:44

May be Japan tobacco spring to mind for any takeover if it ever happens..

[action] 28/9/2023 10:41

Divi due tomorrow

[muscletrade] 28/9/2023 06:49

Tobacco multinational Imperial Brands PLC (LSE:IMB) is gearing up for its pre-close trading update on 5 October amid a drastically changing landscape in the contentious industry.

Recent research from Barclays sees the cigarette industry declining 3% per annum on an earnings (before interest and tax) basis, though growth in NGPs (or next-generation products, comprising vapes, heated products and other cigarette alternatives) could balance this out.

That said, vaping comes with its own headwinds, with government proposals aiming to cut down on disposable products and underage vaping on the horizon.

Therefore, long-term Imperial Brands investors will be eager to see how the firm intends to adapt to these changes.

NGPs grew by 19.8% in Imperial Brands’ last interim period, but they remain a mere fraction of the group’s revenue mix (7%, to be exact).

Notwithstanding the ethical dilemma around investing in harmful tobacco products, Barclays analysts see Imperial Brands as a potential income play, with share repurchases set to ramp up in the years ahead.

“Imperial Brands has a progressive dividend policy, which is more linked to the underlying business growth (i.e. EBIT growth) than to EPS growth,” said analysts.

“We think Imperial Brands can now emerge as a clear value play with a significant cash-return story,” said the bank, predicting that share repurchases could step up as EBIT growth creates balance sheet capacity, while also paying an 8% dividend yield.

On the earnings front, Imperial Brands expects to post an operating profit at the lower end of its mid-single-digit range on a constant-currency basis.

Year-end gearing in terms of adjusted net debt to EBITDA is expected to range between two to 2.5 times, with a full-year tax burden between 22% and 23%.

At current rates, foreign exchange translation is expected to add 3% to 4% tailwind to full-year net revenues, adjusted operating profit and earnings per share.

[fenners66] 27/9/2023 23:10

I think £25 is long gone.
8.25% may be due next March - and should be paid off asap but what's the chances they now roll it over into
another debt instrument, before then of course...

[marktime1231] 27/9/2023 21:35

No, the highest rate on outstanding term debt is 8.125% and that bond is due next March anyway. The remaining highest is 6.125% due in 2027. New bond issues, if IMB need to raise or replace funds in the near future, would probably need to have a higher coupon than that since base rates are so much higher this year. In other words the rest of the term debt is cheap by current standards, worth keeping.

And equally it becomes worth paying down debt of course, if you have a sustainable surplus and don't know what else to do with the cash, once the share price recovers back to £25 and buybacks become less favourable.

One way to end this debate would be for someone to make us an offer at that level. You never know.

[fenners66] 27/9/2023 15:12

mark as I said its been a while since I took a look at the debt details - I did post here - but that figure of 8% is nearer the figure I was trying to remember - I think, some was 9% but I may be wrong .

True the bondholders may not want redemption - but the company entered into the transaction at the time because it could not get a better deal. In the meantime interest rates probably declined and have risen again.

As 1knocker says above its carrying the debt that makes ALL the rolled over debt more expensive Every time.

I have questioned before what is the true cost of having the debt ?
We know ratings agencies give a lower rating the more debt carried - but we also know the higher the debt ratio the higher cost on ALL of it.

[marktime1231] 27/9/2023 14:26

The rate of interest payable on the variable debt drawn from the £3B RCF is not stated anywhere I can see. The syndicted deal denominated I think in Euros was renewed for 3 years in March, I'm guessing at 5-6%, IMB with a BBB credit rating, the Euro base lending rate was 3.75% at that time. The eurobond issue back in March was at 5.25%.

The amount typically drawn tends not to show up in half or full year figures because the book close process is tuned to showing a minimised net debt position, average debt carried will be a higher figure. So my guess of annual interest costs having rise to £400M might be light.

Any spare cash not being used for other purposes is most effectively deployed to reduce the draw on the RCF, if other debt on average is cheaper. Early repayment of high yielding term bonds - noting IMB has only one bond costing more than 8% which is due redemption shortly - does not always suit the bondholders of course, it might not be as simple as cherrypicking those.

Cancelling shares which cost 7-9% in dividends is still the best use of surplus cash, and no quibbles if the announcement of the next buyback does lift the share price by £1-2.

[1knocker] 27/9/2023 12:16

Debt leverages (multiplies) reward in an expanding profitable business. It magnifies risk in a contracting or unprofitable business. A strong, low debt, balance sheet makes a company safer.

The more cargo a ship carries, the more profitable the voyage will be. But it does have to complete the voyage. Loading it until the decks are awash will pay handsomely if the voyage is calm, but if the ship runs into a storm it risks disaster. Look at ships' load markers. The marking WNA (winter, north Atlantic) is the lightest load limit. A period of economic uncertainty, with fast rising interest rates, is WNA for businesses. A time to carry a light debt load, particularly as refinancing that debt is likely to be expensive, and if the business should be having a difficult time when the debt comes to be rolled over, very expensive.

As for buybacks. we employ the BoD to run a tobacco business, not to decide how capital surplus to the requirements of the business should be invested. It is no more the proper function of the BoD to invest capital in the purchase of IMB shares than it is to use that money to buy shares in an AI company they believe will go to the moon. If the company has surplus capital, required neither as working capital, nor to expand the business, nor to pay off debt, it should be returned to the shareholders. They can then decide for themselves according to their own investment judgement and circumstances whether to use that capital to increase their holdings in the company, to buy some other investment, or to spend it on wine women and song.

[spud] 27/9/2023 12:10

The best recent example was at Aviva where Cevian Capital was pushing for a buyback at circa £4.50. AB caved in and promptly squandered a billion or so. Then on 25th May we get the news -

'Aviva activist investor Cevian Capital exits with mission accomplished.'

Aviva now languishes around £3.90 having orchestrated Cevians sell down thanks to a couple of billion of our money wasted.

So yes, I'm not in favour!!

spud

[philanderer] 27/9/2023 12:10

In Portugal at the moment.

30gms rolling tobacco here = £8.00

UK price = £16.00

[spud] 27/9/2023 12:02

Yes, I like that last example fenners!! :))

spud

[fenners66] 27/9/2023 10:57

Maybe a simpler example

You get together with some mates and start a business that is doing well.
One of them owns 50%+ works in the business and pays themselves a good salary

Your return is zero dividends - after all he believes that dividends are a "cost" to the business.
You complain
And get the answer if you want income sell some shares - the business will buy them back and your mate's stake will increase ....

What's not to like ?
Apart from almost everything.

[fenners66] 27/9/2023 10:47

Furthermore he buys companies where possible or controlling stakes not smaller investments.
He bought into the US airline sector which did $100bn of share buybacks with borrowed money and then Needed $100bn to stop from going bust.

Meanwhile WB exited with about a $7bn loss and said that trusting others to do buybacks was a mistake as no one could correctly judge the right price to buyback - but him.

[fenners66] 27/9/2023 10:44

The only way to get money out of BH is to sell it....
oh wait there is another way .... OWN it and pay yourself a massive salary and give yourself a massive bonus
based on the engineered growth in EPS....

What is he now 90+ ?
His stake in the company grows every time he buys more... oh wait no he doesn't have to , sorry every time the company buys back more.

Yes WB is a massively successful investor - but he is looking after HIS own interest there.

[montyhedge] 27/9/2023 10:31

Berkshire I think never paid a dividend, gone for growth shareprice.No good for income boys, lol.

[tomleafs] 27/9/2023 10:23

Someone should inform Warren Buffett about the futility of buybacks. He has a habit of repurchasing billion-dollar blocks of Berkshire Hathaway when it falls below his estimate of intrinsic value. This must truly be affecting his long-term results and could be easily avoided if he were to read ADFVN.

[fenners66] 27/9/2023 09:42

spud - you are right.

At least its a discussion about the business / accounts / metrics etc. Rather than the personal attacks and name calling that these forums often degenerate to .

[spud] 27/9/2023 08:49

Fenners - The phrase ‘wasting your breath’ springs to mind here. The Flat Earth Society, sorry, buyback brigade just can’t/won̵7;t/daren’t listen to reason.

That’s their prerogative though.

spud

[fenners66] 27/9/2023 00:25

As for saving money on paying interest as a P&L cost and not creating profit as opposed to making more profit and giving that to the owners ....as dividends , that's just warped.

Giving the owners their money is never a "cost" to be saved

[fenners66] 27/9/2023 00:22

>marktime1231

Since you seem not to have read it the first time....

"fenners66
24 Sep '23 - 22:20 - 8221 of 8264 Edit

But that £500m could have reduced debt - see previous analysis of the actual interest rates they are paying , not the blended mix , choose the highest and that could have returned savings more than enough to boost the dividend - however just spending some of that on debt and some on dividend would also have worked - the share price will dive on bad sentiment regardless of the buyback."

" NOT THE BLENDED MIX "

I analysed the debt some time back and posted on here , the highest % was much higher than the mix - and would have paid for the dividend increase....

[marktime1231] 26/9/2023 23:55

Adding to kiwi's useful link, IMB reported af half way that

"16 May 2023 · Our all-in cost of debt increased to 4.1% (2022: 3.5%) due to interest rate rises resulting in a need to refinance at a higher cost of debt."

On net debt at 31 Mar 2023 of £9,757M that is an interest bill of about £400M a year, and rising as cheap bonds mature. Did anyone see a notice whether the E750 notes at 1.125% maturing in Aug 2023 was settled with cash or was it replaced with new debt?

In contrast during the buyback programme the cost of the dividend saved was about 7.6%. So buybacks have significant advantage over debt reduction, still, but the gap is closing. It would narrow if the share price recovered to the £21s, but it hasn't it has fallen back in to the £16s, which makes an even stronger case for buybacks.

There is still room in the cash flow to pay down a little debt from time to time, all in favour of that, alongside the buyback programme.

[kiwi2007] 26/9/2023 20:22

hxxps://www.imperialbrandsplc.com/creating-shareholder-value/debt-information

[valuehurts] 26/9/2023 20:08

Whats the coupon on the debt and what's the dividend yield on the shares?