Imperial Brands: Don’t Bank on H1 FY24’s 7.7% EPS Growth

Company Update (IMB LN) (Neutral): EPS growth was driven by buybacks; Tobacco & NGP EBIT grew just 1.3% even with 10%+ price/mix in both Europe and Americas.

Highlights

• IMB shares rose 5.6% to 1,983.5p after reporting a 7.7% ex-FX EPS growth.

• But this was helped by buybacks and the Distribution business.

• Tobacco & NGP EBIT grew just 1.3% ex-FX, held up by Europe.

• Europe had an unusual +10.8% price/mix, likely not sustainable.

• Americas Tobacco volume fell 10.3% as the U.S. shifts to NGPs.

Introduction

Imperial Brands (“IMB”) reported H1 FY24 (October-March) results this morning (May 15). Shares finished the day in London up 5.6% (at 1,983.5p), reaching a new 52-week high:

IMB Share Price (Last 1 Year)

Source: Google Finance (15-May-24).

We have been cautious on IMB, having initiated a Neutral rating in July 2019, when the stock was at a similar 1,937p. Since then IMB shares have gained ~41% in U.S. Dollars in just under 5 years (primarily from dividends), but significantly less than our top Tobacco pick Philip Morris (“PM”), whose shares have gained ~59%. Relative to when we last reiterated our Neutral rating following FY23 results last November, IMB shares have gained ~16% (in both Pounds and Dollars). (For a recap of our views, see our first Substack article on IMB published in May 2023.)

We continue to believe that IMB will be one of the structural losers in Tobacco’s transition to Next Generation Products (NGPs). H1 FY24 results were only superficially stable and contained clues to IMB’s underlying challenges in our view.

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