Imperial Brands: Headwinds Gathering, Avoid Its 8.8% Dividend Yield

(Preview) Company Update (IMB LN) (Neutral)

Summary

• While Imperial Brands has not reported results since November, recent news across the Tobacco sector have made us even more cautious.

• Other Tobacco companies have reported softness in Q4 volumes, from the COVID benefit fading and disposable incomes under pressure.

• Philip Morris' IQOS is making inroads in Europe. Record oil prices after Russia invaded Ukraine will be an even bigger headwind in 2022.

• Imperial Brands has little Russian exposure, but its volumes may see faster declines as rivals redirect Heat Not Burn products to Europe.

• At 1,589p, the stock is trading at a 6.4x P/E and an 8.8% Dividend Yield, but this is not cheap enough in our view. Avoid.

Introduction

We review our Hold rating on Imperial Brands PLC ("IMB") based on recent news across the Tobacco sector.

While IMB last reported its results in November 2021, due to its fiscal year being different from its peers (and ending on September 30), other Tobacco companies have reported results more recently. The sector has also…