Imperial Brands Share Discussion Threads

[huckers] 02/5/2024 11:52

Here is the link to the Fitch Rating Action Commentary:

www.fitchratings.com/research/corporate-finance/fitch-affirms-imperial-brands-at-bbb-outlook-stable-29-04-2024

This is the piece about their debt structure:

"Adequate Liquidity: At FYE23, IMB had GBP1.2 billion of unrestricted cash (as defined by Fitch) and undrawn committed revolving facilities of EUR3.1 billion available until September 2026, EUR184 million until March 2026 and EUR184 million until September 2025. This leads to an overall adequate liquidity cushion to meet short-term debt of GBP1.5 billion due in FY24.

Additionally, the company has access to GBP550 million of bilateral committed credit facilities maturing in September 2024. Most debt is composed of bonds issued by its wholly-owned Imperial Brands Finance PLC and guaranteed by IMB and by its UK operating subsidiary, Imperial Tobacco Ltd."


They haven't updated their debt summary on their investor site and I am still trying to find what they did with regards to the £600m @ 8.125% bond that matured in March.

[muscletrade] 30/4/2024 06:30

Fitch Maintains Imperial Brands' Ratings on Conservative Financial Structure, Low Regulatory Risk
April 30, 2024 at 06:10 am

(MT Newswires) -- Fitch Ratings on Monday affirmed its long-term issuer default and senior unsecured instrument ratings on Imperial Brands (IMB.L) at BBB, with a stable outlook.
The rating action is supported by the British tobacco company's focus on mature and highly regulated combustible tobacco markets, as well as its conservative financial structure that is in line with the lower band of its communicated leverage target.

It also reflects Imperial Brands' lower regulatory risk compared with peers following a decision to review its approach to next-generation

[marktime1231] 22/4/2024 12:13

Edged what?

The approx £1.5B net proceeds of BAT's disposal of an ITC stake being put to a buyback which will cut nearly 3% of stock spread over a two year programme.

vs

The second £550M tranche of IMBs ongoing buyback will remove another 3.5% of stock in just 6 months.

So in that ballgame IMB is smashing BAT out of the park.

In BATs favour it is yielding nearly 10% on its current depressed share price whereas IMB is "only" yielding 8%.

[montyhedge] 22/4/2024 07:23

Both good shares but Bats just edged it with the stake in ITC worth billions and buybacks until the end of 2025 if I remember rightly.

[valuehurts] 21/4/2024 07:45

We should make many multiples of our money with the current strategy and you are after a 40 percent pop? Private equity is private not a fund and they mostly do not care about ESG etc.. they use debt to buy companies on the cheap then use the companies underlying cash flows to pay off the debt used in the acquisition. This is why all tobacco companies use a lot of debt and will continue doing so

[action] 19/4/2024 14:00

This is doing better compare to BATS

[shareideas1] 11/4/2024 15:55

Yes they are in a post Covid super cycle having been bailed out through Covid...

[fenners66] 11/4/2024 15:32

You mean the profit would go up,debt down, dividends and share price up and some non ESG fund would come and offer us a 40 percent premiumm and possibly sack some of the directors?
Terrible if you are a director without a contractual massive pay off. Not bad for every shareholder whom also get the chance to reject it of course.

[valuehurts] 11/4/2024 11:29

Lol if imperial reduces debt it will be taken over and loaded with debt by PE. They will always hold quite a lot of debt. They won't reduce it much further than current levels.

[fenners66] 10/4/2024 13:37

Sorry off topic but Delta airlines results just landed beat expectations and "no sign of demand letting up"

[fenners66] 10/4/2024 12:58

So then you are saying whilst holding up Buffett to be an amazing investor ...
that he got it totally wrong to invest in the US airline industry at all , any time as its not a good long term
business. Not just poor timing.

So he makes mistakes - very very big ones?

Why then do many quote as a reason for buybacks - its good enough for Buffett ?

Anyway I don't think the merits or demerits of buybacks have anything to do with it.
The institutions may not dictate that much to the BODs but one thing they do is share BB
since they hold the cards they get what they want.

[shareideas1] 10/4/2024 12:52

Right now yes... but hugely capital intensive and extremely cyclical earnings which create the natural boom and bust

[louis brandeis] 10/4/2024 12:51

So airline stocks have a medium-term trading opportunity based on post COVID under-capacity. That doesn't make them good long term investments. Their quality of earnings is poor, just like the residential house builders. Poor in the sense, not of size, but of long-term sustainability.

[fenners66] 10/4/2024 12:44

From a Jan 24 article ..

Delta Airlines pre tax $6.44bn +119%
United Airlines $5.16bn + 94%
American Airlines $3.26bn +52%

Right now they can charge almost what they want...

[louis brandeis] 10/4/2024 12:42

fenners

Yes, decreasing debt will increase intrinsic value and it is an option open to the management at anytime going forward.

Of course, generally, one has to be very careful with debt reduction because if the market cap is small enough reducing debt too far increases the chances of having unwanted suitors (funding buyouts with debt). And then, to the likes of you and me, the opportunity of benefitting from future earnings and cashflows disappears completely. However, I think this is very unlikely here. Perhaps likely with some of the small cap house builders ATM - Crest Nicholson, for example.

[shareideas1] 10/4/2024 12:29

Airlines are terrible businesses

[fenners66] 10/4/2024 12:26

Louis

You can increase intrinsic value for every shareholder by removing the debt (as explained above).

This is more relevant with a mature company and a declining market like IMB as they are less likely to
need further large funds to reinvest in the business in the future.
The new CEO seems to agree as he believes sticking to the knitting and improving the efficiency of the
core business is the way forward

[louis brandeis] 10/4/2024 12:01

Thank you Huckers. I appreciate that. :)

[fenners66] 10/4/2024 11:59

The US airlines have a great business.
Right now they can charge what they want (almost) and are charging more because they cannot get planes.

Their problems were caused by buybacks about 5 years ago.
Since they knew best they bought back cumulatively $100bn
Then covid etc and suddenly they needed , guess what , $100bn just to survive.
I think it was massive share dilution as well as govt funding that kept them alive - too big and too important to fail.

Buffett bailed and lost $7bn

[huckers] 10/4/2024 11:55

Louis. A very lucid set of arguments/explanations. Thank you.

[louis brandeis] 10/4/2024 11:54

Woodford made some mistakes that cost him. One of his mistakes was to assume retail investors understood what 'patient capital' means. Obviously the council involved didn't understand this word 'patient' and neither understood the mechanisms of an investment trust. Councils shouldn't be investing in such things. Lots of things were wrong around Woodford. All very depressing. Don't even mention Hargreaves Lansdown

[louis brandeis] 10/4/2024 11:47

fenners

1. I don't understand why you think it is different for Buffett. He is an ordinary shareholder the same as all the other Berkshire holders: It is a publicly listed company. He owns 16% and is the chairman. It isn't a private company. As far as airlines go the issues of his failure investing in airlines isn't to do with the buybacks it is more to do with airlines fundamentally being bad investments due to their ability to suck up capital for new aircraft (purchase or lease) whilst having zero competitive advantage and having to price like commodities.

2. OK, so make it obvious that the coupon rate is pretax. What is obvious is that sustained buybacks executed correctly overtime work for shareholder value. Spot decisions would include many variables some of which we are not privy to. So it is difficult for us to say whether paying down that debt was the obvious answer. If it was I'm sure it would have been done. You have to have some faith in the CEO and CFO, if you don't then sell your share.

3. If you payback the debt the problem seemingly disappears only until you might need to increase debt financing again. Don't forget credit investors have a market too.

4. Intrinsic value has EVERYTHING to do with buybacks. If shareholders are willing to sell to the business something that is worth £1 for 50p the business should buyback as many it can afford to. In this scenario you are increasing shareholder value for those shareholders that remain. The opposite to this is if you are executing buybacks at a share price of £1 when they are only really worth 50p: in this scenario you are destroying shareholder value.

5. I think you raise a good point which is what I refer to in that the business has to be a good one and on a sound financial basis to begin with in order for buybacks to work and also to be taken seriously by investors that know what they are doing. I think you do have an argument to pay some more debt down but there is an opportunity cost with buybacks and future interest rates are (were?) expected to fall.

[fenners66] 10/4/2024 11:37

As for just how much liquidity matters more to institutions look at Woodford.

He made an absolute fortune for himself playing with other peoples money.
It really did not matter if their investments went up or down he got a % .
Could there be a more damning indictment of that then the suspension of his fund so no one can withdraw
and he was still taking a % out ?!

There he is making a fortune - until it all falls apart after an institution wants to pull its cash out and there
is no liquidity.
All the other fund managers who had not learned by then suddenly woke up - liquidity is key and stuff the
arguments of the investors

[marktime1231] 10/4/2024 11:30

et tu spud

[fenners66] 10/4/2024 11:15

boomdaboom "In the long run the only thing that determines the price of a stock is the earnings per share"

Too simplistic.
If you have a company with EPS and no cash - there is no long term.