Shares in Imperial Brands (IMB) drifted modestly lower on Tuesday as the global tobacco company continued to talk up huge investment and pressure on profits in its latest update. The JPS to Davidoff cigarettes maker also cautioned that Covid has impacted smokers’ buying patterns, doing little to reassure investors.
Imperial Brands said it expects organic sales for the first half to March 2021 to grow by ‘at least 1%’ amid rising tobacco prices and an improved performance in its loss-making next generation products (NGP) business.
Imperial’s share price fell 1.4% to £14.90 in morning trading.
BOMHARD’S FIVE YEAR PLAN
Today’s pre-close trading update was the first chance for chief executive Stefan Bomhard, who took the reins last July, to show how Imperial Brands’ revamped management team is implementing the five-year strategy unveiled in January.
The new strategy aims to transform the company by revitalising its tobacco business to create shareholder value and position itself for the future. The company expects to invest somewhere in the region of £245 million to £275 million.
Analysts remain largely sceptical, with plans to revive stagnant brands like Winston and West in the face of regulatory pushback on smoking and increased public health awareness.
But there were some encouraging signs in today’s update, with Imperial insisting that it has begun to achieve ‘aggregate market share growth in our five priority markets with gains in US, UK and Spain more than offsetting declines in Germany and Australia’.
Imperial has stuck with the full-year guidance given in November, which calls for low-mid single digit organic adjusted operating profit growth, albeit with the increased investments needed to deliver against the strategy set to weigh on returns.
PANDEMIC IMPACTS BUYING PATTERNS
While overall tobacco volumes are in line with expectations, Imperial Brands also conceded that Covid-19 ‘continues to affect consumer buying patterns across different channels and markets’.
Yet Bomhard still expects first half adjusted organic operating profit growth to be ‘at least mid-single digit’ at constant exchange rates thanks to reduced losses in its NGP business and increased profits from its logistics operations.
‘Tobacco operating profit has been impacted by a lower duty windfall in Australia as previously guided and as we lap the impact of US trade inventories following the higher wholesaler purchases in March 2020 to meet Covid-19 pantry loading demand,’ explained the company.
