Imperial Brands: Not Getting Better; Avoid Its 6x P/E And 9% Dividend Yield

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

Summary

• We review recent developments at Imperial Brands and its competitors ahead of its FY21 trading update on October 6.

• Imperial Brands has launched Heat Not Burn trials in two European countries in September as planned; results are too early to tell.

• Philip Morris's IQOS has been negatively impacted by the global chip shortage, with forecasts cut and launches delayed.

• British American Tobacco experience shows that Imperial Brands will find it extremely hard to catch up in Next Generation Products.

• We believe FY21 guidance will likely be met or exceeded, but long-term business problems have not improved. Avoid.

Introduction

We review our Neutral rating on Imperial Brands PLC ("IMB") ahead of its FY21 (ending September 30) trading update on October 6, based on recent developments at IMB and its competitors.

We initiated our Neutral rating on IMB in July 2019. Since then, shares have lost 3.0% (in GBP, after dividends) in just over 2 years. Year-to-date, IMB stock has gained just 5.1% (in G…