marlboro smoking lady

Imperial Tobacco Reveals a 2.4% Increase in Earnings

Published on January 14th, 2016 00:00

Imperial Tobacco - not too long ago declared the present conflicts in Syria and Iraq will hold back its advancement this year.
Revealing a 2.4% increase in full year operating earnings to about £3.05bn, the company stated it estimated to build on its purchase of a number of US cigarette brands sold after the merger of Reynolds American and Lorillard. However, the Lambert & Butler and Gitanes holder stated it predicted “a headwind form Iraq and Syria in the first half.” It added: Exploring the year ahead we anticipate 1Q volumes will proceed to reveal the scenario in Iraq and Syria as well as a solid comparator quarter for volumes a year ago, while first half profit should gain from more powerful relative pricing. Overall, we are well positioned to meet objectives for the forthcoming year.

That self-confidence together with a 10% rise in the dividend has raised Imperial’s shares to £35.01 in downbeat market. Analysts at Credit Suisse stated: The entire year results on balance look great to us; a ‘beat’ on both revenue per share and net debt, solid pricing, US integration running smoothly and great progress on growing brands. On the adverse side, organic volumes are sluggish; lower by 4% in the 4Q over half of which was Iraq/Syria. With another year of double digit revenue per share and dividend development in prospect and the latter well protected by free cash flow, Imperial proceeds to look very appealing within the staples space.

Canaccord Genuity on the other hand has repeated its sell suggestion, even though it has increased its objective price from £27.05 to £27.25:
While the 4Q overall performance was strong overall, looking ahead we continue to be worried about the effect of the launch of plain packaging in the UK and Ireland in mid-2016 (and its likely adoption in other EU markets in the coming future), and the most probable increased aggressive danger from bigger players like Altria and Reynolds American in the US as the pricing standstill contract runs out in mid-November 2015.

The increase from brand migrations more generally will now halt, even if this will not be a big surprise. We do not count on an offer from any merge of BAT, Philip Morris and Japan Tobacco in the coming future.  Therefore, we see the shares as highly valued.