NGP, less brilliant than expected, weighed on FY19 profitability
Within this challenging year, the group reported a mixed set of FY19 results. While Tobacco remained resilient, the NGP disappointed as the category delivered lower than expected results, despite the group investing a lot in its development. It negatively weighed on operating profitability, which was actually -1.6% below consensus (but higher than our estimates). We see the more cautious guidance as more realistic, which is not a bad thing. The ambitions were previously too high on the NGP category.
05 Nov 19
LIBERUM: Consumer Staples Weekly - VUSE PMTA; Campari; Drunk Elephant
Last week we published a video discussing our recent initiation on six companies in the European soft drinks industry. Click here to see the video. Reynolds American submits PMTA for VUSE e-cigs to FDA Campari acquires Ancho Reyes and Montelobos brands Shiseido acquires prestige skin care brand Drunk Elephant
IMB CPR ULVR
14 Oct 19
LIBERUM: Consumer Staples Weekly - Nestle-Before Brands; CBD Bill; E-cig ads
Last week, we cut our TP for Imperial Brands (BUY, TP 2900p) after its profit warning. Nestlé Health Science invests in Before Brands U.S. House of Representatives passes CBD banking bill U.S. House panel asks e-cigarette companies to stop advertising
Imperial Brands Nestle
30 Sep 19
LIBERUM: Imperial Brands - Management discount due to dubious adjustments
Earlier this year we wrote recommendations to the incoming chair. Since then we were pleased by management's decision to step away from its formal 10% dividend growth target and to initiate a buy-back programme. The shares responded positively.
27 Sep 19
The challenging NGP market in the USA and change in expectations of the results in Africa, Asia and Australia (AAA) has pushed IMB to warn on its next FY results. This is no major surprise, as we were already aware of the regularity issues in the US. While NGP products currently represent a small proportion of sales (between 5-10%), it is in this area that IMB focuses all its investments and sees its next growth driver.
26 Sep 19
LIBERUM: Consumer Staples Weekly - FDA’s new rule; Diageo-Cuba Ron, L’Oréal
Last week, we published an update on Kerry Group (HOLD, TP €112.00 from €95). FDA proposes new rule for graphic health warnings on cigarettes. Diageo enters into a JV to distribute Santiago de Cuba rum. L’Oréal to pay $91m to Olaplex in patent infringement case.
IMB DGE OR KYGA BATS
19 Aug 19
LIBERUM: Consumer Staples Weekly - Henkel-eSalon; IMB-Auxly; Primark
Our latest edition of Consumer Staples Weekly includes: Henkel enters personalized hair colour market with eSalon JV Imperial Brands invests C$123m in Auxly Cannabis Group Primark demanding up to 30% rent cuts from UK landlords
Imperial Brands HENKEL AG & CO KGAA VORZUG
29 Jul 19
LIBERUM: Consumer Staples Weekly - Remy CEO; E-cigs deadline; Heineken pubs
Our latest edition of Consumer Staples Weekly includes: Remy Cointreau CEO Valerie Chapoulaud-Floquet to step down E-cigs companies to submit PMTA for FDA review by May 2020 UK Pubs Code Adjudicator to investigate Heineken’s pubs
IMB RCO BATS
15 Jul 19
LIBERUM: Imperial Brands - An important step in the right direction
Imperial Brands announced its intention to grow the dividend by 10% this year, followed by a progressive dividend policy, stepping away from its 10% dividend growth policy. The company is also announcing a share buyback program, which will return up to £200m by the end of the current calendar year.
08 Jul 19
LIBERUM: Consumer Staples Weekly - JUUL’s FDA approval; Scotch whisky; Tate
We highlight key news items and our recent note on Imperial Brands. Former Commissioner Gottlieb warns JUUL may not be approved Scotch whisky production rules modified to allow new casks Tate extends distribution partnership with DKSH to Vietnam
IMB DGE TATE
25 Jun 19
LIBERUM: Consumer Staples Weekly - FDA permits IQOS; Heineken; IMB’s cigars
We highlight key news items from the past week and our views below. US FDA permits sales of PMI’s IQOS heat-not-burn. Heineken enters Ecuadorian beer market with Biela acquisition. Imperial Brands confirms intention to sell premium cigars.
Imperial Brands British American Tobacco
07 May 19
Cenkos: Imperial Brands Plc - Another one of those H1/H2 years …
The company has reiterated that it expects revenue growth at or above its 1-4% range, with EPS growth of 4-8% provided disposal gains are included and the potential dilution of disposals is ignored. The revenue growth will not come in Tobacco where the company makes money, but will come in Next Generation Products where it does not. The first half will carry the costs of “investment” in “new stuff” which the company is confident will pay back quickly. It was similarly confident when it was investing in its Tobacco “brand equity” in 2016/17 but market conditions over took it and profits disappointed. Much is being taken on trust in estimates, with consensus still willing to include disposal profits without recognising it is probable that earnings will be diluted, as they have been with the selling down of the Logista stake. The valuation may not appear challenging, but BAT is cheaper and a much, much better business.
27 Mar 19
LIBERUM: Consumer Staples Weekly - FDA’s guidance; Pernod wine sale; Unilever
We highlight key news items from the past week and our views below. FDA issues draft guidance to restrict minor's access to e-cigs. Pernod considering sale of its wine division. Unilever announces changes to leadership team.
IMB RI ULVR
18 Mar 19
LIBERUM: Consumer Staples Weekly - graze; Slave labour; US alcohol tax cuts
Last week, we reinstated coverage on Henkel with a BUY rating and €98 TP as we support the group’s renewed strategy and see the current share price as an attractive entry point. We also published videos highlighting our best consumer staples ideas for 2019 - ABI, IMB and RB.
IMB RB/ ULVR BN NESN
11 Feb 19
LIBERUM: Morning Comment
PraxisIFM Initiation, Early Cycle Indicator, Frontier Developments, Consumer Staples Best Ideas Video, Infineon Technologies, Carlsberg, AMS, Electrocomponents, Market Highlights
IMB FDEV IFX CARLB AMFW ECM ABB WEIR ALO BOY G1A KNEBV LR PHIA SCHP SIE SMIN IMI SAND SU SKFB RB/ IRV BDEV MELE VCT RDW
06 Feb 19
LIBERUM: Consumer Staples Weekly - The Laundress; driver shortage; Juul India
We highlight key news items from the past week and our views below. Unilever acquires premium home care brand The Laundress. Wal-Mart raises pay in bid to attract drivers amidst shortage. Juul planning to enter Indian market by late 2019.
IMB ULVR BATS
04 Feb 19
LIBERUM: Consumer Staples Weekly - HUL; Danone; Japan Tobacco; Graze (15 pgs)
On 22nd January, we published our 2019 outlook for the European Consumer Staples sector. On 23rd Jan, we published our note Tobacco - Menthol migration maths highlighting the potential impact of a U.S. menthol cigarettes ban on the tobacco sector.
IMB ULVR BN BATS
23 Jan 19
LIBERUM: Tobacco - Menthol migration maths
This report provides a review of key studies supporting the FDA’s menthol ban. After speaking to experts in Canada who published research on Ontario’s menthol ban, we map how US cigarette profits may react at the brand level.
Imperial Brands British American Tobacco
23 Jan 19
LIBERUM: Consumer Staples: Our Best Ideas - We expect sector rotation into defensives: Buy ABI, Imperial, Reckitt
In 2019, we expect moderating global GDP growth, led by deceleration in the U.S. and further softening in China. We expect tariffs and trade disputes, political uncertainty and volatility in key markets (U.S., EU, UK) to lead to further systemic shocks which may adversely impact valuations.
IMB NESN BN ABF KYGA TATE ULVR OR RB/ BEI ONTEX MCB CARLB DGE RI CPR RCO BATS
22 Jan 19
Cenkos: Imperial Brands Plc - Paid. While you wait.
Executive remuneration is a tricky area, especially when it comes to balancing long term goals and short term aspirations. Imperial tried to bring in a new remuneration policy in 2017 but it was never put to the vote. There have been attempts to revise the existing policy by changing weightings on targets and they continue this year. There is something of an improvement in some areas but too much emphasis is given, we believe, to revenue growth in NGPs as a target. The balance is still not right. Management has a route to getting paid. Investors may have to wait. More details inside.
18 Dec 18
LIBERUM: Strategy & Stock Selection - Sinners – 2018 Edition
We present the fifth edition of our annual Sinners note, scoring FTSE 100 companies based on 14 areas that may indicate business risk – the Red Flags. The worst offenders have underperformed the FTSE 100 in each of the last three years, albeit with some disparity since the 2017 report. We begin with a qualitative assessment from company auditors, followed by 12 quant screens, and finish with an evaluation of remuneration policies. Overall, nine companies flag four times or more. AstraZeneca, CocaCola HB, BAE Systems, Next, Rolls-Royce and Wm Morrison remain from 2017. New entrants include BP, Marks & Spencer and Melrose Industries.
IMB AZN BA/ RR/ MKS MRO GSK JMAT PSON RB/
06 Dec 18
Email Distribution Preview - Cenkos: Global Tobacco - Menthol issues
There was an article in the Wall Street Journal suggesting that the FDA was looking to revive earlier investigations into banning menthol in US cigarettes. While not dismissing the inevitable impact on sentiment, herewith some background and issues to consider.
IMB MO PM BATS SWMA
12 Nov 18
Cenkos: Imperial Brands Plc - Peeling onions
As ever the headlines look fine, but it is the detail which is always the issue. The headlines say adjusted operating profit was flat or up 3% at constant currency. The company would like to call “underlying” performance +6% by excluding its choice to “invest” in NGPs, excluding the reduction in one-off income, excluding the one-off costs of Palmer & Harvey and excluding transactional F/X. That would be generous. The dividend is up 10%, as expected, and the company expects current year revenues to grow at the upper end (and possibly beyond) its 1-4% target growth range. The market has made the mistake of heeding revenue growth not allied to profit growth with Philip Morris. As a reminder 20% of management LTIPs are driven by NGP revenue growth this year with the weighting of adjusted EPS growth lessened in both bonus and LTIP awards. And there is another set of restatements to look forward to.
06 Nov 18
FY18: stronger second half; ramping up efforts to expand NGP
The company posted strong H2 results with a better than expected operating margin. The results were reassuring and suggest that the company has a clear view about possible threats and opportunities in the troubled tobacco space and how to navigate round them.
06 Nov 18
LIBERUM: Imperial Brands - Ending FY18 with a 1.1% beat, increased sales guidance
Imperial Brands’ adjusted EPS came in at 272.2p, beating consensus estimates by 1.1%. All divisions beat adjusted EBITA expectations excluding Return Markets South. The group expects to deliver constant currency revenue growth at, or above, the upper end of the 1-4% range for FY19. The medium-term guidance for constant currency EPS growth of 4- 8% remains in place. Today’s beat should reassure investors. Imperial is our top pick in tobacco.
06 Nov 18
Cenkos: Imperial Brands Plc - “In line” … but waiting for the details
The CFO bought shares last week, so it was improbable that the statement today would be different from “in line”. The question, however, is “how?”. The company wants the market to include “other gains” of £50-100m (£40m in H1) as part of operating performance while excluding “other losses”, for example the cost of Palmer & Harvey (£160m). We do not do that for other companies. “Price/mix” is stronger in H2 but as discussed before this is a balancing item not an indicator of genuine performance. So, for today, the headline is that the results will be “ok” but that is the same message as this time a year ago.
25 Sep 18
LIBERUM: Imperial Brands - Solid H2 results, momentum building in NGPs
Imperial is on track to deliver growth in constant currency revenue and earnings in FY18 in-line with guidance. The tobacco business delivered much stronger results in H2 as guided at H1 results. Volumes for the full year will outperform the industry although H2 volumes are slightly weaker than the H1 level. This is more than offset by significantly stronger tobacco price/mix in H2 coupled with increased next generation products sales which combined will lead to revenue growth in-line with guidance. Cost savings will be slightly ahead of original expectations for £100m while other gains in operating profits are within the guidance range for £50-100m. Adverse FX subtracts 3% from FY18 earnings. Imperial is our top pick in tobacco. Reiterate BUY, TP 3100p.
25 Sep 18
Cenkos: Global Tobacco - Playing with fire
This week sees the bi-annual PMI investor event. With nerves in the sector clearly still raw it will be an important opportunity for the company to rebase previously overblown expectations for iQOS but, much more importantly, to restate the comments at the Q2/18 results that “the fundamentals [of cigarettes] are robust, reflecting a strong pricing environment and improving volume trends”. PMI has been central to the increased concern that the industry is pursuing a higher revenue growth but profitless future. It needs now to help stabilise the ship.
IMB MO PM BATS SWMA
24 Sep 18
Cenkos: Global Tobacco - Nerves of steel
It has been a nervous first half year for the sector as the usual concern about the industry having a long-term future has been increasingly a concern about whether it has a short-term one. Part of the concern has been self-inflicted by some companies' over-emphasis, in our view, of “Next Generation” products seemingly at the expense of current generation consumers. After decades of (wrongly) being deemed “ex growth” we understand the desire to deliver faster revenue growth, but faster revenue growth with the same profit growth is an outlook which we are happy to see left with the Food Manufacturing sector rather than Tobacco. The interim results season is almost upon us. The industry has tried to demonstrate it is delivering for shareholders: in BAT's pre-close statement; in Japan Tobacco's recommitment to pricing internationally; in PMI's earlier and larger than expected dividend increase. The results season will be another chance to reinforce those messages.
IMB MO PM BATS SWMA
17 Jul 18
LIBERUM: Imperial Brands - Initiation - Excellent buying opportunity
IMB currently trades on trough multiples as the group nears the end of its multi-year transformation into a focused brand builder. We model that the US implements a nicotine standard from 2023 leading to a 40% fall in US volumes, yet still arrive at significant upside. In our view, IMB has ample IP, people and brands to take share in the fastgrowing vapour category. Strength in the US and Germany could catalyse shares. IMB is our top pick in tobacco. BUY.
20 Jun 18
LIBERUM: Tobacco - Be greedy when others are fearful
Our initiation finds that in spite of increased regulatory risks, both IMB and BAT are Buys. Both companies trade at the widest discount to Consumer Staples in over 15 years, despite improving prospects. Shares are so depressed that we believe the market is discounting a nicotine standard far earlier than the FDA can reasonably deliver. Our base case assumes the US nicotine standard comes in 2023. We see significant upside on conservative assumptions.
Imperial Brands British American Tobacco
20 Jun 18
“Something must be done”
The market initially responded warmly to the announcement that Imperial is looking to sell “non-core” assets which it believes will reap it up to £2bn over the next two years. What is being sold, and to whom, has not been disclosed and it remains to be seen what impact any disposals may have on the finances of the business. Meanwhile the operating profit performance of the business remains challenged. Much is promised for the second half of the financial year, as it was last year. The outcome disappointed then, and there remains a risk of the same happening again. We fear that the distraction of the mooted disposals has diverted attention from the continued shortfall of performance against aspiration. “Something must be done”, pursuing disposals is “something”. But the question is whether it is the right thing.
07 Jun 18
H2 will be great…
The first half year for Imperial is going to be another weak one, but the company believes that its second half performance is going to make up for it. This mirrors the guidance for last year, although then the second half fell short due to circumstances which were not previously anticipated by the company. When the company suggests that it is on track to meet constant currency net revenue and earnings expectations we presume that it includes one-off, non-trading benefits while continuing to exclude “one-off” costs but we do not. That, however, is only one reason why our estimates are below consensus. The company was not expecting much constant currency EPS growth this year even on its adjusted measure, and F/X will erode most of that. It still expects to grow the dividend by 10%, by further eroding cover. The mismatch between the lack of earnings growth and 10% dividend growth grows ever more apparent.
07 Feb 18
Once more …
The sector has had one of “those” starts to the year, as it so often feels like it does. Bond yields are backing up and the sector is a bond proxy - well if you ignore for a moment the dividend growth so consistently and materially delivered. The FDA’s TPSAC is not playing nicely on clever new products, but then did anyone really think that it would? Sterling strength is a pain for the UK based stocks, even if the dollar is offering a fillip to PM. Meanwhile smokers smoke and generally pricing should be a bit better this year than the past two. Constant currency growth should continue to be delivered by the industry, albeit not shared equally among the sector’s constituents. It feels like we should be late into the bull market cycle. The sector’s solidity should have many attractions.
IMB MO BATS PM SWMA
31 Jan 18
Russian dolls get smaller and smaller as you take them apart. Imperial feels much the same. The company has said that it should have been “a little more transparent” in the past and will offer greater clarity and transparency in future. This is clearly a transitional stage with respect to disclosure as it is only in the notes to the Accounts that we find that the company lost money in Russia last year. Our estimates are below consensus, partly because we refuse to include one-off positives while excluding one-off costs, but mainly because trading has consistently disappointed and we see no reason to believe that it is going to change. The estimated yield suggests that the market does not believe the company’s dividend growth aspirations. Nor do we.
18 Dec 17
FY2017 –H2 beats and NGPs gain transaction
Imperial Brands (IMB LN, BUY, T/P 5100p) announced a solid set of FY2017 results. Tobacco volume fell -4.1% less than the forecast -4.8%, total adjusted operating profit was in line with consensus at £3.8bn and adjusted EPS was 267p slightly below the 271p consensus estimate. Share momentum in priority markets drove H2 volumes.
07 Nov 17
FY in line; steps up in NGP race
FY update: tobacco’s net revenue was down 2.6% at constant currency (cons.-3.3%, H2: +0.1%) and +8.2% on a reported basis (FX: +10.8%) with volumes down 4.1% (cons. -4.8%, H2: -2.6%) and the price/mix +1.5% (in H2, industry volumes were down 4.5%). Growth Brands’ volume rose by +5.5% and gained an 80bp market share. By market and at constant FX, Growth Markets’ net revenue was flat at -0.2% (weaker H2 in Russia), whereas Return Markets recorded -4.5% (impacted by EU TPD and investments). The US recorded +0.3% in net revenue (a much stronger H2). The total adjusted operating profit was down 3.2% at constant currency and +6.2% on reported figures (in line with consensus). The dividend is up +10%. For the FY18, the company expects to deliver revenue and EPS at constant FX within its mid-term guidance (1-4% top-line growth and 4-8% EPS growth). IMB also expects to launch new e-vapor products in new and existing markets.
07 Nov 17
Living down to expectations
A year ago consensus had expected adjusted EPS of 278p for the 2017 year, before last year’s warning brought that expectation down. The company has reported 267p but that includes £114m of one-off items (£81m pensions curtailment in H2/17 after £18m in H1/17, ~£10m of exceptional gains in Logistics and another £5m somewhere else which we cannot find yet) or 9.5p per share, so the truly underlying outcome was actually nearer 257p allowing just for these. The F/X benefit was 23p according to the company, and so constant F/X EPS appears to have fallen around 6% (the company says -2%). In addition to the (largely) stated one-offs it seems that the performance in the US has been flattered by an MSA writeback which is unquantified at this stage but we would guess to have been around $100m. The company has flagged that it will be booking more “non-operating income” of £50-100m in the current year. We have excluded these from our estimates as surely is right to do. The PER may look “cheap” at 11.8x and the yield attractive at 6.1% but the EV:EBITA multiple excluding Logista is 11.8x for the current financial year and that is no steal. The PER reflects a low tax rate, the yield an unsustainable dividend policy. Some may be relieved it is not worse but we fear that estimates will remain under pressure.
07 Nov 17
Strong H2 further Market Share Gains
Imperial Brands (IMB LN, BUY, T/P 5100p) released a trading statement this morning, which confirmed market expectations of around £8½bn for full year sales revenue. The company is due to release preliminary FY2017 results on 7th November 2017.
28 Sep 17
Hold the bunting
If all you care about is “meeting expectations” then Imperial’s statement says that it will do, in respect of earnings at least. For some that will be enough. Two factors are relevant we believe: what were those expectations and how are they going to be met? On the first point, the company had warned last November not to expect much for this year due to “investment” in the business and so this was going to be a year in which the company continued to underperform peers. Estimates had to be reduced, and materially so. On the second point the interim results included a pension curtailment benefit in the US and an exceptional gain at Logista which even Logista treated as exceptional. “In line” in quantum may not mean in line in “quality” and the company has an unfortunately lengthening history of including items which may not always be regarded as trading items in its definition of “adjusted” profit. Until we see the details in November we will hold the bunting.
28 Sep 17
E news equals encouraging
Imperial Brands (IMB LN, BUY, T/P 5100p), whose flagship next generation product and e-cigarette brand is BLU, should receive some encouragement from today’s NHS Scotland release. NHS Scotland appears overall in favour of ecigarettes being used as a cessation product – i.e. an alternative to combustibles. NHS Scotland’s comments echo those recently made by Public Health England that e-cigarettes are up to 95% less harmful than combustibles.
21 Sep 17
Banishing the Blues
Having presented at the Barclays Back to School Conference in Boston on 5th September, Imperial Brands’ (IMB LN, BUY, T/P 5100p) will update investors further on 28th September with a trading update ahead of its 30th September 2017 year-end. In our view, the core business is still robust, next generation products have momentum and key cash conversion metrics remain attractive.
15 Sep 17
Selling shares in Logista when it is trading on 15x consensus earnings to buy your own shares on 12.6x appears to be an entirely sensible thing to do but the fact is that the benefit of the reduced share count only offsets the dilution to estimates of an increased minority charge. The sum retained from the disposal, less than £70m net of fees on both transactions, is immaterial relative to either outstanding debt (£16.1bn ex Logista) or the dividend cost (£1.4bn). Apart from the short term benefit to share price of there being a material buyer of the shares over the next month, we cannot see the longer term value to shareholders of this financial engineering exercise. The company’s comments on trading have been taken as a confirmation of existing estimates we believe although the statement does not formally say as much. The dividend yield looks attractive but we maintain our view that ultimately DPS growth must reflect EPS growth, and there is an obvious mismatch on the company’s own expectations.
12 Sep 17
The FDA goes “Back to the Future”
The FDA took on regulation of the tobacco industry in the US in 2009 and there was much concern at the time that it would introduce some form of draconian control on the industry. In fact it has done very little, in part because of its over-riding requirement to form regulation based on science. In this respect the FDA is in a very different position to tobacco regulators in most of the rest of the world where regulation can be based on whim and personal prejudice, an obvious example being the introduction of plain packaging in the UK.
IMB MO BATS PM SWMA
31 Jul 17
Imperial Brands’ (IMB LN, BUY, T/P 5100p) hosted an investor webinar yesterday, 27th June. Alison Cooper, CEO chaired the webinar with Amal Pramanik focusing on portfolio opportunity and Marcus Diemer on portfolio strategy. The emphasis of the webinar was acceleration of the principal growth brands, where the company targets 1%-4% revenue growth in FY2018. The webinar also included a deep dive into brand migration and rationalisation. Overall, we perceive the updates to be positive.
28 Jun 17
Raising its own hurdles
Imperial’s interim results followed the trend of the last few announcements in that the headlines did not quite tell the whole story. Once again the company included a number of one-off items within results which were otherwise “adjusted” for non-recurring items and once these have been re-adjusted for the underlying picture is somewhat more challenging. The company has stuck doggedly to its guidance for the current year in constant currency terms, but we question whether shareholders’ interests are necessarily best served by that being achieved. Surely the root cause of the warning about this year’s earnings was in previously running the business harder than the level of profit it could genuinely support. To repeat the issue so quickly risks a further “resetting” of estimates in due course we fear. The management has accepted that its medium term growth rate will lag peers, but what is true for the medium term is also true in the shorter term. Our HOLD recommendation reflects our fear that estimates will continue to drift, mitigated by the yield (as dividend growth will be the last target dropped) and a pragmatic acceptance that while we do not see corporate activity, others will speculate about it.
16 May 17
Selling assets to pay a dividend?
Imperial has announced that it is going to pursue asset sales to generate up to £2bn of proceeds over the next two years. If achieved that can support dividend payments in the short term, but does not address the fundamental weaknesses of the business we believe. There may be willing buyers of these assets but this is a small industry in terms of numbers of players and the assets Imperial looks to sell are unlikely to command the “strategic” multiples paid by, for example, JT for Natural American Spirit or to consolidate its position in Russia. In the meantime the company is promising a stronger second half performance. It needs to deliver but we fear that even low expectations could prove a challenge. The dividend yield should be something of a support, but the strategy for supporting that dividend over the medium term remains elusive.
09 May 17
H1: Focus on quality growth as industry becomes more challenging
H1 update: tobacco net revenue was down -5.5% on constant currency (in line with consensus) and +9.3% on a reported basis (FX: +14.8%) with volumes down -5.7% and the price/mix 0.2% (industry volumes were down -4.3% in the period). Growth Brands volume rose by +3.2% and recorded +6.9% net revenue growth at constant FX. By market, Growth markets’ net revenue at constant FX grew by +1.7%, whereas Return markets recorded -7.7% (termination of PMI contracts in the UK and Morocco + investments). The US recorded -6.8% in net revenue (industry volume decline of -2.5% + investments) and a flat adjusted operating margin at constant FX. The total adjusted operating profit was down -8.1% at constant currency and +5.7% on reported figures (in line with consensus). Tobacco’s operating margin contracted by 150bp. Growth and Specialist brands accounted for 60.4% of the Group’s tobacco net revenue. The interim dividend is up 10%.
03 May 17
Smoke still rising
Imperial Brands’ (IMB LN, BUY, T/P 5100p) interim results were in line with both our own and market expectations. Moreover, the company reconfirmed its expectations for the full year. Tobacco net revenue was in line with VUMA onsensus at £3.7bn (-5.5.% in constant currency). Volume fell 5.7% to 126bn sticks, which was slightly below both Whitman Howard and consensus. There is an analyst meeting and webcast at 9.00am today
03 May 17
In line with low expectations but…
Imperial had been quite open in warning that its first half year would be weak, and it has not disappointed. Total volumes were -6%; constant currency revenues were -6%; constant currency tobacco profits were down 8%. Fortunately sterling was weak and so in reported terms tobacco profits were +6%. But that sterling benefit is fading; from +14% when the 2016 results were reported to +9% now and at spot rates 2018 will see a return to a modest headwind keeping estimates under pressure even if the company is given the benefit of the doubt that the “investment” made in H1/17 will pay back in H2/17E as promised. The dividend is up by 10.0% again and that will be enough for some but the issue remains that the dividend growth can only be achieved by running down cover over time which inherently is a policy with an end point. The shares are essentially unchanged over the past 12 months and we are reminded ever more of the long period post the Altadis acquisition. We retain our HOLD recommendation.
03 May 17
A lot to deliver
Imperial lowered guidance for the current year last November and so its comment that “we are on track” should be seen in this light we believe. As previously guided H1 profits will be lower on a constant currency basis but sterling has been weak and so at actual rates profits will be “up strongly”. At the full year stage the company had made the same point about the benefit of sterling albeit that its reporting date coincided with sterling’s weakest point and the benefit, while still considerable at 13‐ 14% for the year has, at the margin, lessened. On a constant currency basis much needs to be delivered in H2 for the company to say that “guidance for full year earnings is unchanged” and in particular it needs a very rapid payback on discounting undertaken in the first half of the year. It may deliver, but estimates certainly already assume that it does and that this year is simply a “one off” year of investment. The risk is that the conditions which required a resetting of current year expectations are deeper rooted.
30 Mar 17
Trading update matches current expectations
Imperial Brands (IMB LN, BUY, T/P 5100p) issued a trading update today, which overall matched current expectations for the half and full year. In particular, the company states that it is on track to meet earnings expectations for the half year results – due 3rd May 2017 – at both constant and reported exchange rates.
29 Mar 17
Investor “webinar” shows the light
Imperial Brands (IMB LN, BUY, T/P 5100p) hosted an investor strategic update webinar yesterday, 21st March 2017. Alison Cooper (CEO) focused on “Quality Growth” reinforcing the sentiments from the Bristol investor day on the 8th June 2016.
22 Mar 17
Investor “webinar” should whet appetites further
Imperial Brands (IMB LN, BUY, T/P 5100p) is due to host an investor webinar on Tuesday 21st March 2017 at 1300UK. The webinar is part of a programme of more regular strategic updates. We expect it to echo the strong sentiments of its 8th June 2016 “Quality, Agility, Discipline” investor day in Bristol.
16 Mar 17
The apparent UK budget realisation that next year’s sugar tax may yield less government revenue than originally envisaged is pretty much in line with expectations. Moreover, it vindicates a recent statement made by AG Barr (BAG LN, HOLD, T/P 600p) and similarly comments made Nichols (NICL LN, BUY, T/P1760p) in the aftermath of preliminary results.
IMB BAG NICL BVIC BATS
09 Mar 17
Something old, something new
It might not have been a vintage year for the sector in share price terms, but 2016 was not all bad. Reynolds American (by 11%), BAT (+9%) and Altria (+6%) all usefully outperformed local markets and only in the case of Japan Tobacco was there both material underperformance (-12%) and a capital loss (-11%), the worst possible outcome for shareholders. Given that by year end stock markets were discounting reflation, it could have been worse. As per last year we have few doubts about the ability of the industry (if not all players equally) to deliver constant currency profit growth, but showing this in local currency will be the issue. For Philip Morris International (PMI) in particular the risk of further US dollar strength is material. Sterling is in a very different place, however, and hence BAT remains our favoured play, alongside Altria.
IMB MO BATS PM RAI SWMA
19 Jan 17
West goes East
Imperial Brands’ (IMB LN, BUY, T/P 5100p) announcement of a mutual brand marketing tie-up with China government owned CNTC looks both imaginative and useful. However the amounts of upfront money involved – which typically drive market reactions to such announcements – appear minimal at this stage. Moreover, despite the size of the relevant Chinese, Russian and Ukrainian markets, initial volumes will probably be very small relative to the overall size of two of the world’s 6 largest tobacco manufacturers.
12 Jan 17
Delivers good FY; launches £300m of investments and phase 2 of cost savings programme
FY preliminary update: Tobacco’s net revenue is up +9.7% at constant currencies and +14.7% on a reported basis (FX: +5% positive impact of the weakening pound). FY Tobacco volumes were down 3% (Iraq & Syria impact of -1.5%) but Growth Brands volumes rose +4.3% (and recorded +10.1% revenue growth at constant FX and a +50bp market share gain). By market, Growth markets’ net revenue at constant FX grew +4.3% (+8% excluding Iraq & Syria), whereas Return markets recorded -2.7% (weaker Ukraine, the UK and Morocco). The US recorded almost double its revenue on the back of the acquisition of assets from Reynolds American and improved its adjusted operating margin by +270bp (good news). The total adjusted operating profit is up 10.4% at constant currency and +16.1% on reported figures. Tobacco’s operating margin expanded by 60bp. Net profit for the year is down to £669m vs. €1.69bn on the back of higher net financing costs (fair value and FX losses) as well as cost optimisations linked to the acquisitions. The dividend is up 10% (in line with mid-term guidance). The company announced a new cost optimisation programme which should deliver £300m of annual savings by 2020 (at a cost of £750m). Imperial will also invest £300m behind selected quality growth opportunities with a net impact of £200m in FY17.
08 Nov 16
On track to meet full year expectations
Imperial Brands (IMB LN, BUY, T/P 5100p) issued a brief trading statement this morning in relation to the whole of FY2016. The company, which has a September year-end, states that it is “on track to meet full year expectations at both constant currency and reported exchange rates.”
29 Sep 16
UK FMCG – Price Target Revisions
Stockmarket uncertainty in the 3-week period since the Brexit referendum outcome unsurprisingly led large cap UK FMCG shares to outperform the domestic index. The sector clearly benefits both from sales stability and high overseas earnings. Comparative UK profit exposures are shown in Exhibit 1 below.
IMB BATS DGE RB/ SAB ULVR
15 Jul 16
UK FMCG winners and losers from Brexit
The British referendum on EU membership is scheduled for 23rd June 2016. While opinion polls and bookmaker odds still bias towards “remain,” it makes some sense to assess briefly potential the FMCG winners and losers in the event of Brexit happening.
IMB BATS DGE RB/ SAB ULVR BAG BVIC CARR CWK DCG FEVR GNC PIL STCK TYR
03 Jun 16
Good H1 with encouraging signs coming from the US
IB reported its H1 results. The reported net revenue was up +15.4% (+2.5% on an underlying basis which excludes the +16.1% impact of acquisitions in the US, -1.8% impact of Syria & Iraq and FX -1.4% ). Tobacco volume was down -3.1% (-9.2% excluding acquired US brands, Iraq & Syria had a -3.2% impact on volumes). Reported tobacco operating profit margin was up +50bp. Growth Markets’ net revenue at constant FX was up +2.1% (+9.7% excluding Iraq & Syria), whereas the Returns markets delivered -0.5%. Growth Brands’ volumes were up +0.2%. Growth & Specialist Brands contributed to 58.6% of the revenue for the period. The EPS was down to 30.4p (vs. 89.5p last year) due to the amortisation of acquired brands and linked to acquisitions’ cost optimisations. The proposed dividend is up 10% (47.0p).
04 May 16
H1 sales and profit in line – beat on adjusted EPS
Imperial Brands (IMB LN, BUY, T/P 4200p) released interim results in line with market expectations at revenue and operating profit level with a beat on adjusted EPS. Revenue increased by 16.8% to £134m at constant currency while group adjusted operating profit advanced by 19.5% to £1,637m. Adjusted EPS was 113p compared with a Bloomberg consensus of 111p.
04 May 16
Q1 looks good
Imperial Brands (formerly Imperial Tobacco) released its Q1 trading update: tobacco's net revenue at constant FX grew +16.6% (+10% on reported figures). On an organic basis (excluding FX and the US acquisition), tobacco's net revenue grew +2%, or +4.3% excluding the negative impact of Iraq and Syria. Total tobacco volumes were down 3% and -9% on an organic basis (-4% attributed to Iraq and Syria). Growth markets reported net revenue down 2.5% (+7.2% excluding Syria & Iraq driven by the blu e-cigarette, excluding blu the growth was c.2.5%) whereas Return markets were up +0.3%. Growth Brands' volumes were up +0.4%. Growth Brands' market share grew 100bp. The group share was down 40bp due to shaving off some Portfolio Brands.
11 Feb 16
FY results in line with expectations; US offsets the Iraq and Syria drag
ITG released its FY results. Tobacco's net revenue at constant FX rose by 4.3% and was down 2.6% on a reported basis (-6.9% FX effect). By market, Growth markets' underlying net revenue was down 2.5% (+4.5% excluding Iraq and Syria), whereas Return markets recorded +2.8% in underlying net revenue. The US (reported separately from Growth markets) recorded +39.4% in underlying net revenue following the completion of the acquisition of assets from Reynolds American. FY15 volumes were down 3% and 5.6% on an underlying basis. By brand, Growth Brands' volume increased +7.1% (+13.9% excluding Iraq and Syria) whereas Specialist Brands' volume was down 1% on an underlying basis. The group's adjusted operating profit rose to £3.05bn (consensus at £2.96bn), +2.4% on a reported basis and +6.8% on a constant currency basis. Tobacco's operating margin progressed by 300bp on a reported basis, whereas the adjusted operating margin progressed by 280bp. The group's adjusted EPS was up +4.5%. The proposed dividend stood at 141p (+10.1% yoy). ITG expects that the next quarter's results will be impacted by the situation in Iraq and Syria and strong comps for volumes, whereas H1 16 revenue should benefit from stronger relative pricing.
03 Nov 15
9M update: on track to deliver FY guidance
ITG released its 9M update. Net revenue at constant FX grew by +2% (consensus at 2.6%), -4% on a reported basis and 0% on an underlying basis. Total tobacco volumes were down 3% (consensus at -2%) on a reported basis and down by 6% on an underlying basis (partially due to the political and security situation in Iraq). Growth Brands recorded a solid performance with volumes +10% on an underlying basis and 14% on reported figures. It also increased its market share by 100bp. Specialist brands' sales grew by 3% in volumes on an underlying basis. Growth markets' underlying net revenue was down 1% (up +3% excluding Iraq), whereas Return markets recorded +1% in underlying net revenue. The company is on track to deliver its £85m savings in FY15 and dividend growth of 10% for the full year. ITG also expects a cash conversion of c.90% for the FY.
19 Aug 15