Imperial Brands Share Discussion Threads

[boomdaboom] 02/3/2024 14:50

The size of BATS business is many times larger than IMB so of course the absolute levels of debt will be higher. This is why it is more useful to use the net debt / EBITDA ratio when evaluating the level of debt. As I mentioned earlier BATS net debt is currently around 2.7x and the company has stated that once this level is within their target range of 2-3x they will shift their focus from reducing debt to share buybacks, most likely within the next 6 months. At this point BATS will be buying back just as much of the company as IMB currently is, assuming the valuation stays at this level.

With regards to the ITC stake, personally I would actually prefer them not to sell just for the sake of reducing net debt. ITC is actually growing faster than BATS and so seems short sighted to sell of your most prized asset. The net debt issue will resolve itself over time unless you believe BATS revenues are going to fall off a cliff tomorrow. Ultimately, given the valuation this is what many believe will happen, but therein lies the opportunity.

[huckers] 02/3/2024 07:45

boomdaboom. Thanks for your view on BATS. I think they are certainly working to improve the debt leverage, which is encouraging. Like marktime1231 I have preferred IMB pretty much for exactly the same reasons as him. That said, I am tempted to dip a toe with BATS just to have a little skin in the game to make me keep a closer eye on their progress. Anything I buy would be dwarfed by my IMB holding where I also loaded up at around the 1,200 mark.

[marktime1231] 01/3/2024 23:58

You could argue BAT is in the gutter, share price well below the covid lows, which is why the yield prints so high, things must get better from here. It has again raised the possibility of selling its ITC stake but I haven't yet heard how it is going to overcome the obstacles which have prevented it from doing so before now. If it finds a way that will be well received.

It is the sheer quantum of BAT debt which put me off, £40B at the end of 2019, so instead I dived in to IMB where the debt was "only" £12B. Its cost cutting focus and debt reduction strategy has been a winner. I have bought and traded some well including adding in the 1200s during covid. Maybe BAT should have cut its dividend too. I have been well rewarded with gains and (my) yield is 10%.

But that was then and this is now, as someone famously used to say. Which has the better financial position, the better share price prospect, the better dividend prospect? Very hard to say. But I personally would not touch BAT because it still has about £35B debt and has to plough surplus cash flow in that direction for n years rather than shareholder returns. Until it finds another way. Whereas IMB is removing another 8% of its stock this year, and probably 5% next year, and maybe after that another 5% all of which is concentrating value and translating into dividend growth. The share price decline over the last year is disappointing, unwarranted response to political announcements while financial performance is sustained. Such is life.

[jrphoenixw2] 01/3/2024 20:42

Huckers @ #73^: '(Also, did anyone ever get to the underlying reason behind the recent share price drop: fears over tobacco duty in the budget?)'

On Tuesday a new vape tax was being floated as a possibility for next weeks budget. THAT is what whacked IMB.
x-ref:

[boomdaboom] 01/3/2024 19:51

@marktime1231 BATS net debt is 2.7x vs 1.9x for IMB....doesn't seem like a huge difference to me. BATS have stated their target range to be between 2-3x and should commence buybacks very soon. The reason IMB has a lower level of net debt is because they slashed the dividend a few years back, BATS has never cut the dividend, and now yields over 10% which is very well covered. In addition, BATS have announced their intention to sell part of their ITC stake soon, which will further reduce net debt.

@huckers coincidentally I also bought a large BATS holding a few years back for around 2,500p and sold around the same time as you for around 3,500p. In light of recent weakness I have recently re-purchased my position at around 2350p and will add more if it continues to fall in the absence of any negative developments.

Both BATS and IMB seem to have taken a hit since the rumours of a new tax on vaping in the budget, which if this is the reason, seems quite absurd as this will have a negligible impact on the earnings of either company. A lot of UK investors seem to think the UK is the centre of the universe when in reality the UK represents a relatively small proportion of total revenues. IMB and BATS are strong buys in my opinion although I would expect BATS to outperform in the long run due to its stronger position in reduced risk products and greater geographical diversification.

[marktime1231] 01/3/2024 18:09

No I have never been tempted by BAT, the debt here was a burden but BAT is still carrying a mountain. Until they have debt down to the level where they can reallocate capital eg buybacks I will stick with IMB.

A pure BAB merger on par terms would not excite the share price of either, except for the potential synergies eg cost savings. A pe-orchestrated take private and combination with cash which closes the valuation discount, or BAT (or?) swallowing IMB with a part cash deal would give us the payday. A $25B offer to delist IMB when it is earning $4B and debt down to around $8B is not a huge ask, and there may be opportunities to make it even more tasty.

Big investors building up stakes clearly have this end game in mind, consolidation is inevitable, it is a matter of years but how many?

[huckers] 01/3/2024 15:16

marktime1231 / fenners66. Are you also invested in BATS? I was in with a very small position from 2,534p to 3,456p (exited a year and a half ago). My holding in IMB is substantial by comparison.

Do you think there is a good case for adding some BATS at its current level? Does the debt concern you or do you feel they are deleveraging quickly enough?

Any thoughts welcome.

(Also, did anyone ever get to the underlying reason behind the recent share price drop: fears over tobacco duty in the budget?)

[marktime1231] 01/3/2024 13:57

On the theme of a BAB merger, do you imagine there is a tacit agreement between BAT and IMB to not go head-to-head where it can be avoided. Different brand priority, geographical markets and next gen products. So that any eventual merger would be highly complementary and not necessarily anti-competitive. Probably not written down anywhere, but it makes sense to be seen as a good fit. Who would be on top in this marriage, BAT on size but IMB in better financial health?

IMBs low-hanging opportunity is its stake in Logista, just look at the fight going on over Wincanton. The future is still all about getting stuff from A to B, and where to store it in the meantime.

[louis brandeis] 28/2/2024 08:45

You'll have to share it with me I'm afraid. :)

[adeg] 28/2/2024 07:33

If they keep buying back at the rate they did yesterday in just over 5 years I'll own the whole company!

[philanderer] 28/2/2024 00:44

New Zealand pulls back on plan for world's first mandated smokefree society




email&utm_source=seeking_alpha&utm_term=34494010.798

[spud] 27/2/2024 21:05

Yes, that's my takeaway as well. We're seeing a major overreaction to todays news and I fully expect to see the lost ground recovered in pretty short order. spud

[zicopele] 27/2/2024 20:43

This is actually really good news. Vapes are going maonstream.

Government needs the tax revenues.

[salver2] 27/2/2024 20:21

Apologies I didn’t read the RNS detail !

[shareideas1] 27/2/2024 18:48

He sold half his nil cost options to cover his tax liability...

[tag57] 27/2/2024 18:41

Salver2 - if he did I would have thought he would be f@@ked.

[salver2] 27/2/2024 18:18

It should be noted that the CFO Lucas Paravicini sold about half his stake last week for a million pounds-does he know something we don’t?

[tornado12] 27/2/2024 16:14

I carry on adding YoY with expectation of my complete capital return within next 6 yrs. I accept the share price is at risk , but believe the divi can continue for a number of decades to come , tax free. I don’t believe that smoking will disappear from planet but rather flatten out in next years GLA

[louis brandeis] 27/2/2024 16:05

Let people sell their shares to the company for less. IMB can buy a percentage of the company annually at a greater rate than fall in sales.

This reminds me of Buffett’s play on Rockwood. Everyone was selling their shares back to Rockwood for certificates of ownership in cocoa beans at a better rate than the current price that they overlooked the fact that remaining shares after the buyback would hold more cocoa beans/share than what Rockwood were offering on the buyback deal.

[philanderer] 27/2/2024 14:06

Hopefully chart support at 1715p , then looks like down to 1580p.

[pete160] 27/2/2024 14:03

IMB - Net sales (all sales, not just vapes) are distributed geographically as follows: the United Kingdom (13.2%), Germany (13%), the United States (11.4%), France (9.9%), and other (52.5%).

I cannot see today's share price fall as being just down to news of a potential tax on vapes in the UK, and even if they added 10% more tax (including the vat) IMB, BAT and others will just increase the retail price.

I'm a holder of IMB and it's a great price to add more for the yield (as I did when BAT had their recent price hiccup)

[redbaron10] 27/2/2024 13:44

I suppose this share price drop was always likely to happen.News of tax on vapes and with the two big quarterly dividend dates behind us then it gives an excuse for the MMs to take this down.This will probably stumble around the price we are now for six months and then the interest will build for the two big quarterly divis again.

[dmore2] 27/2/2024 13:21

Sunak must be shorting big tobacco

[tourist2020] 27/2/2024 13:14

It seems to be company specific. BATS has not really moved much.