Imperial: H1 ’24 Trading Update

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Imperial Brands confirms that is is on track to meet H1 and FY24 guidance1:

– strong tobacco pricing (more than offsetting industry volume pressures in certain markets) and stable aggregate share in the top-five combustible markets (i.e. share gains in the US, Spain and Australia, broadly offsetting declines in Germany and the UK)

– Mid- to high-teens (15%-20%) Next Generation Product (NGP) net revenue growth (presence in 20+ European countries and the US – supported by blu disposable and iSenzia non-tobacco heatstick extensions as well as the entry to the US nicotine pouch market with Zone)

– Low single-digit H1 operating profit growth, reflecting the anticipated H2-weighted performance

– Tobacco operating profit: Europe and Americas more than offsetting a softer performance in the AAACE region (against a strong H1 2023 benchmark)

– NGP operating loss: Reducing as the gross margins improve with scale

– Low single-digit tobacco & NGP net revenue growth and a step-up in adjusted operating profit growth (to the middle of mid-single digit range) in FY24 (re-confirmed)

– Cash conversion improved and in line with guidance

– On track to deliver the £1.1Bn buyback program: at 31 March 2024, £604Mn buyback completed, representing ~3.7% of the share capital as at 1 October 2023.

– 5% and 3.5% translation FX headwind on H1 ’24 and FY24 operating profit, respectively

– FY24 net debt to EBITDA to remain at the lower end of 2.0-2.5x range

The interim results for the 6-month period ended 31 March 2024 will be announced on 15 May 2024.

Our takeaway:

Nothing much to cheer about. Although Imperial confirmed the FY24 revenue and operating profit guidance, the Trading Update seems to be drafted in a way to conceal some unpleasant details: such as a steeper than expected volume decline in tobacco (3.9% decline estimated by the sell-side). Moreover, as expected, NGP growth (15%-20%) disappoints to the downside (46% growth estimated by the sell-side).

IMB.L is trading at an undemanding 5.75x P/E multiple (based on the FY24 EPS consensus of £3) with a comfortable debt level (around 2x net debt / EBITDA). Moreover, a large share buyback program (~8% of share capital at the time of the announcement) is in place. Even if Imperial’s update is not “cheerful”, it is unlikely to trigger a new wave of sell-off to a new 52-week low (£15.5).

We continue to expect Imperial to range trade below the key £20 level and at historical lows (in terms of valuation multiples). As long as Imperial fails to address the “transformational” concerns, the £20 level is likely to act as a impregnable ceiling for the Imperial shares. Recall: Imperial: H1 ’24 Trading Update – Preview.


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