Imperial Brands – On track for guidance as sales of next-generation products help offset lower tobacco volumes


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Imperial Brands (LON:IMB) half-year net duty revenue of £3.5bn rose 0.3% to £3.5bn. Tobacco revenues rose 0.1% as higher prices may have offset a 0.7% decline in volumes. Next Generation Products (NGP) recorded net sales growth of 8.7%, driven by a strong performance in Europe.

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Underlying operating profit rose 2.9% to £1.6bn as NGP losses fell 49.9%.

The group remains on track to deliver net sales growth of around 0-1% for the full year and underlying operating profit growth of 1%.

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The board announced an interim dividend of 42.54p, 1% more than last year.

Shares rose 4.2% after the announcement.

Improved Imperial Brands market share

Matt Britzman, equity analyst at Hargreaves Lansdown:

“As we enter the second year of Imperial Brands’ five-year strategic plan, the focus remains on improving market share in the group’s core markets – the US, UK, “Spain, Germany and Australia – which account for around 70% of earnings. We continue to see consumer trends return to more typical patterns following a boost given during lockdowns, now we are able to going out and this has a negative impact on the demand for traditional tobacco products.

The key is therefore to make progress in the transition from increasingly unpopular cigarette products and to develop a next-generation product offering. Imperial Brands pretty much scrapped its plans and started from scratch about a year ago when the new strategy was announced. Europeans seem to be hanging on to the group’s heated tobacco products, whose sales have jumped just under 50%, led by Pulze, which is expected to roll out to other markets later this year. We recently saw Philip Morris International Inc. (NYSE:PM) put a $16 billion bid on the table to buy Swedish Match, the largest provider of oral nicotine, further underscoring the desire of traditional tobacco players to expand their offer. Imperial Brands is launching its own oral products, which are showing positive signs so far in Sweden, Norway and Austria.

NGP’s losses are narrowing, but it’s still a loss-making business segment, so it’s positive progress that needs to continue. With full-year group sales expected to rise 0-1%, there isn’t much else for markets to get excited about. In the meantime, however, an 8.5% dividend yield isn’t bad to sit on, but it would be nice if the investment case was based on more than just high yield.

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