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Imperial Brands full year results: Why is the tobacco giant’s IMB share price rising?

By Jenny McCall

13:12, 15 November 2022

A image of the IMB Blu e-cigarette
IMB are the manufacturers of the blu e-cigarette (pictured) and it appears to be helping the groups stock price stay lit - Photo: Getty Images

Imperial Brands (IMB) stock price is lit right now, but it's all against the backdrop of a drop in profits, which the group reported on Tuesday in its full year results, 

Like IMB's competitor British American Tobacco (BATS), Imperial Brands share price is on fire this year, despite its profit loss. IMB stock price has been up 27% this year and the group also said today that it will deliver a 1.5% increase in the annual dividend and assured shareholders it would keep increasing shareholder returns going forward.

So, can IMB’s share price keep growing?

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Imperial Brand (IMB) share price chart

IMB stock price is on fire - but its profits are wet

IMB reported a 14.7% drop in its profits for the last 12 months, the decline was mainly due to its exit from Russia, reported group revenue of £32.5bn ($39bn), down by 0.7% from the previous year. IMB also gave a mediocre outlook, stating that profit growth in the new year will initially be flat as the group seeks to invest in its new generation products – such as vaping.

“Looking ahead, we are well positioned to deliver against the next phase of our five-year strategy. The additional investment and the actions we have taken during the initial two-year strengthening phase have built stronger foundations as we face a more challenging macroeconomic environment,” Stefan Bomhard Chief Executive said in the group’s earnings statement.

“We are well placed to build on our track record of delivery over the next three years, improving returns and creating sustainable growth in shareholder value.”

“Shares in tobacco giant Imperial Brands, whose key brands include Blu (e-cigarette), JPS, Davidoff and Gauloises, are up by a third over the past 12 months and approaching a three-year high,” Danni Hewson, AJ Bell financial analyst wrote in a note.

“The stock is one of just fourteen in the FTSE 100 that can point to a double-digit percentage gain in 2022 to date (fellow tobacco player British American Tobacco is another).”

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Hewson highlights that investors appear to be putting aside their doubts over the long-term future of smoking and looking at how Imperial Brands (IMB) can adapt in the face of ongoing regulatory pushback by developing its next-generation products, in favour of the relative short-term dependability of demand at a time when the economic outlook is so uncertain.

British American Tobacco (BATS) share price chart

Can IMB's new era of products salvage its profits?  

“The firm’s brands may also convey some degree of pricing power, a valuable facet when inflation is running so strongly and firms face margin pressure from rising input costs,” Hewson said.

“The market also seems to be warming to the five-year plan laid down by chief executive Stefan Bomhard in January 2021 after a string of profit warnings, managerial upheaval and a dividend cut.”

The group's adjusted net debt reduced by £0.6bn.

“Net debt is important because the stronger the cash flow and the stronger the balance sheet, the greater scope Imperial Brands has for making cash returns to shareholders, especially at a time when rising interest rates mean that any debt refinancing are likely to lead to increased interest payments,” Hewson said.

However, Hewson highlights that when it comes to the dividend, analysts were looking for a 2% increase in the full-year payment to 142.2p a share, with another increase to 148.6p in the year to September 2023. IMB delivered a 1.5% dividend increase.

As IMB moves into a new era with its next generation products, its share price is looking strong, however, if it continues to lose profit, its positive stock price may start to see some weakness.

Markets in this article

BATS
British American Tobacco - GBP
25.62 USD
0.29 +1.150%
IMB
Imperial
20.925 USD
-0.12 -0.580%

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The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
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