Shares in tobacco behemoth Imperial Brands (IMB) dropped 3.4% to £15.02 despite confirming that it is on track to meet its full year profit growth forecast.
This is at odds with indications that the group’s focus on its five key priority tobacco markets is delivering results, and that the performance of its NGP (next generation products) is improving.
The company has announced that full year operating profit growth is expected to be in line with its guidance of low-to-single mid digit constant currency growth. Group revenue is anticipated to increase by approximately 1%, driven by strong pricing in tobacco.
FOCUS ON PRIORITY MARKETS DELIVERS RESULTS
The group’s strategy of focusing on its five key priority markets of USA, Germany, UK, Spain and Australia is starting to deliver improved results. These markets account for 72% of group operating profit.
Total group cigarette market share is expected to grow by around 20 basis points in the US, which is the second largest tobacco market.
The company has been expanding its sales team from 700 to 900 to drive greater coverage. Until recently only 63% of outlets have been covered.
NEXT GENERTION PRODUCTS
There is a growing demand across all four key NGP products- modern oral nicotine, heated tobacco, closed and open vapour.
This demand chimes with clear consumer needs for potentially less harmful alternatives to tobacco. The group has been focusing its efforts on the heated tobacco segment given that it currently represents the single largest NGP category with strong growth prospects.
It also plays to Imperial’s strengths, leveraging its existing tobacco expertise. Today’s update revealed that losses in this category have significantly reduced.
DEFYING ANALYSTS SCEPTICISM
The confirmation of full year profit guidance will to some extent, undermine analysts cynicism towards Imperial’s plans to revive stagnant brands in the face of regulatory pushback and increased public health awareness.
