Imperial: Trading Update – Preview

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Imperial Brands will provide a pre-close trading update for the FY23 (October 2022 – September 2023) on October 5, 2023. In the first half of FY23, Imperial reported +0.6% revenue growth and -0.3% adj. operating profit decline for the Tobacco segment – excluding the Russia exit and at constant currency. At the Group level (including the Distribution business), Imperial reported +1.2% adj. operating profit growth and -1.2% EPS decline.

In addition, Imperial stated that they are on track to deliver acceleration in adj. operating profit growth in the second half of FY23. Thereby, they guided low single-digit revenue growth for the Tobacco segment and mid-single digit growth (albeit lower-end) for the Group operating profit in FY23.

Ahead of the pre-close trading update, sell-side analyst consesus1 closely mirrors Imperial’s guidance. However, there is significant variation in the estimates for the tobacco segment revenue growth. Earlier this week (September 25, 2023), Imperial Brands made a new 52-week low at 1,623p. IMB.L is now down -19.5% in 2023 (-19% in US$ terms). Since the announcement of the H1 2023 results (May 16, 2023), IMB.L is down -11%. Based on the last closing price (1,667p), IMB.L now trades at a historical low 5.9x trailing P/E (FY23 consensus EPS: 283.5p) – nevertheless, receives no meaningful bid since marking a post-covid high at 2,185p in November 2022.

If Imperial results disappoint in terms of tobacco revenue growth, “business concentration” concerns would be re-flamed:

– product mix: almost fully dependent on traditional tobacco products (only 3% of the revenues from NGPs)

– geographical mix: excessively dependent on a handful of mature markets (- in which, a “tipping point” has been reached in terms of cigarette volume decline).

However, Imperial will report the full FY23 results only on November 14, 2023: next week will be about qualitative updates and confirmation/invalidation of the FY23 guidance provided during the H1 2023 earnings release. Considering that IMB.L is already trading below the key £17 level and at historical lows (in terms of valuation multiples), it is unlikely that the pre-trading update will trigger a further sell-off next week. In other words, bad news are mostly priced in – until the day Imperial delivers fresh bad news.


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