Tobacco Firm Imperial Undervalued Despite Dividend Rise

Imperial's strong brand presence in Europe could help its move into the vapour-releasing heated tobacco industry

Philip Gorham 7 November, 2017 | 2:23PM
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Imperial Brands cigarettes

Imperial Brands' (IMB) latest full year results today demonstrated on a number of levels why the firm is Morningstar equity analysts’ pick of the European consumer staples group. Modest outperformance on the top line, the surprise announcement of an entry into heated tobacco, respectable performance in challenging markets, and continued capital discipline all support our investment thesis. Analysts continue to believe Imperial is undervalued.

We have raised our sales forecasts higher and made our margin assumptions slightly lower and retain our £39.00 fair value estimate. The immediate market reaction has been positive but muted, which probably reflects concerns over short-term profit margins, after the firm announced incremental investments in next-generation products, and also some irrational scepticism over Imperial's growth opportunity in its broader portfolio despite being late to the game in heated tobacco.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
British American Tobacco PLC2,584.50 GBX-0.58Rating
Imperial Brands PLC1,553.50 GBX-1.83Rating
Philip Morris International Inc95.62 USD0.79Rating

About Author

Philip Gorham