Non-cigarette Products Come to Imperial's Rescue

Imperial Tobacco outperforms in most of its core markets in the first nine months of 2011 but we think the shares are fairly valued

Philip Gorham, CFA 26 July, 2011 | 5:34PM

Emerging markets and non-cigarette products helped drive Imperial Tobacco (IMT) to a performance in the first nine months of fiscal 2011 that was in line with our expectations. Our investment thesis played out during the quarter, with Imperial outperforming in most of its core markets thanks to a value-focused product portfolio. We think the firm is well positioned to benefit from ongoing regulatory pressure in Britain, although Spain remains a significant drag on results. After a near 20% rally over the past four months, the stock is now trading close to our fair value estimate. We would suggest waiting for a wider margin of safety before building a position, but believe there could be further upside if Imperial becomes a takeover target for one of the larger global players. For the entire note, click here.

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Securities Mentioned in Article
Security NamePriceChange (%)Morningstar
Imperial Tobacco Group PLC2,621.00 GBX0.98
About Author

Philip Gorham, CFA  Philip Gorham, CFA, is an associate director of equity research for Morningstar.