Imperial Brands, IMB, Shares Fade Back After Trading Update, What Now?

Trade Imperial Brands Shares Your Capital Is At Risk
Tim Worstall
Updated: 7 Apr 2022

Key points:

Imperial Brands (LON: IMB) shares have given up half a percent of their 3.3 percent rise yesterday. The rise was off the back of Imperial’s trading update.

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It’s not that the news was startling or anything, but that it conformed to previously announced expectations. Given current events that things were still moving along as we thought they were going to is a removal of uncertainty after all.

The actual trading statement is that strategic objectives are being met. The policy of investing in the top 5 markets carries on. This leads to a first-half operating profit ahead – at constant currency rates – of last years. Pricing discipline is strong, tobacco volumes are proceeding as expected.

As from the last update on March 15, revenue growth will be in the range of zero to one percent, operating profits up by perhaps 1%.

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Given the debt load, the biggest issue is probably how that is being tackled and that is, as they say, coming down. From Half-year 2021 at 2.6 times, to 2.4 times at this HY. As the debt load is reduced this does, of course, leave more room for dividend payments.

There are two other issues discussed. The first is the fate of the Russian business, given recent events. The aim is to find a local third party to whom there can be an orderly transfer. Rather than simply abandoning matters, that is. There’s also always – although this isn’t mentioned as it would not be politic – the thought that an orderly transfer might well allow re-entry into the market after this is all over.

Of greater long-term significance is the performance of the heated tobacco products. For both regulatory and consumer reasons, it’s obvious enough that the market for smoked tobacco products is declining. There’s still good money that can be made out of sweating a shrinking market, but clearly, shareholders would also like to think there’s a future for the business.

So, the results of the Next Generation Product (that’s the blu vapour product in the US, the Pulze trials in Czech Republic and Greece) lines are going to be increasingly important to the Imperial share price over time. This trading update just tells us that they’re doing well, fuller details will be provided in the actual interim results themselves.

One further little detail to absorb. Up above we mentioned “constant currency” and that’s not quite what matters to an international company. It’s current, or market, exchange rates will determine the net line to shareholders at the end of the process. These have moved against the business and are likely to produce a 2% “headwind” on first-half eps and a 1% one for the year.

Imperial is normally thought of as a dividend stock rather than one to look at for capital appreciation. But the technological change in this area could change that – those new tobacco product results are worth considering.

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