Imperial Brands buybacks return with £1bn plan
AS THE second year of Imperial Brands’ refreshed strategy ends, investors have been given a few things to cheer about.
For the first time in several years the group’s set to gain market share. That’s due to the increased focus on core markets and a more disciplined approach to spending and investment.
Also net debt’s now within the group’s target of 2-2.5 times earnings. That’s given management scope to start a £1billion buyback along with a promise to continue buybacks. That’s as well as the prospective dividend yield of 7.7 per cent.
That makes profit growth the main area of focus moving forward, and that’s not been easy. Sales volumes of traditional tobacco products have been in decline for years. That’s left the likes of Imperial with one choice, raise prices.
It’s a tactic that’s working for now and sales are expected to grow around one per cent this year, increasing over the years beyond. That’s enough to keep cash flowing, but growth in the market’s unlikely to get much more exciting.
Imperial aren’t alone in that, though. The industry’s jostling for position in the up-and-coming Next Generation Products (NGPs) market, which includes products like heated tobacco and vape.
It’s not been an easy start for Imperial Brands. Management responded to its NGPs’ lukewarm reception by exiting unprofitable markets, homing in on those it felt had more potential. It’s early doors, but trials look promising and broader rollout is underway.
Investment in these new products will weigh on performance in the short term, and the NGP division is loss making. It’s the right move if a narrowed focus helps the group build out successful cigarette alternatives, but there’s a long way to go.
It’s promising to see some real results flowing through, and investors are being rewarded for sticking with it. But Imperial still has plenty of work to do to catch up with rivals’ more evolved NGP ranges.
Imperial Brands is certainly worth a look in by investors chasing income. Trading on a forward price to earnings ratio of 6.7, the group’s valuation is a little way below its peers, relieving at least some of the pressure to deliver growth.
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