Imperial Brands: Likely Good News On October 6 But Still One To Avoid

(Preview) Imperial Brands (IMB LN) (Neutral)

Summary

• Imperial Brands is scheduled to release a pre-close update on October 6, and we expect mostly positive headlines.

• FY22 guidance is likely to be met, and the update may point to higher dividends and the resumption of buybacks in November.

• H1 results released by competitors point to an overall benign cigarette market, and recent company comments were reassuring.

• At 1,914p, shares look superficially cheap with a 7.7x P/E and a 7.3% Dividend Yield. However, we believe shares should be avoided.

• However, Imperial Brands is behind in Next Generation Products, where it is mostly "winner takes all". Vapour also has structural risks.

Introduction

We review Imperial Brands ("IMB") two weeks ahead of its FY22 pre-close update (on October 6) and after IMB shares have stagnated in USD terms for the past 3 months.

We initiated our Hold rating on Imperial Brands in July 2019. IMB has significantly underperformed its peers since then, and its share price remains lower (even in depreciated GBP) than at…