- FTSE 100 member announces a fourth consecutive year with a share buyback worth at least £1 billion
- Cost efficiencies, market share gains and pricing offset falling stick volumes
- Forward dividend yield for the coming year is 5.6%, with buybacks on top
- Shares trade near highest mark since January 2018
“Shares in Imperial Brands stand near seven-year highs after the company’s full-year trading update, which offers the tantalising prospect of an increased dividend and a further hefty share buyback in the company’s next financial year,” says AJ Bell investment director Russ Mould.
“This brings to an end the five-year turnaround programme launched by Stefan Bomhard when he became chief executive and enables his successor, Lukas Paravicini, and new chief financial officer Murray McGowan, to start their tenures on the front foot.
Source: LSEG Refinitiv data
“This confounds the bearish narrative which continues to surround the tobacco industry, as regulatory pressure and health campaigns continue to weigh on demand and reduce annual volume sales of cigarettes, or their equivalent. But ultimately, long-term shareholder returns are more a matter of mathematics than narrative and Imperial Brands’ shares had two things in their favour here, despite the undeniably testing operating environment.
“The first was how the company remains highly profitable and cash generative thanks to efficiency drives, selective market share gains and pricing power, courtesy of an array of key brands which includes JPS, Davidoff and Gauloises. Revenues continue to grow even as stick volumes fall, also helped in part by growth in next generation products (NGPs), such as blu, Pulze and iD.
Source: Company accounts. *Cigars business sold in 2021. Financial year to September.
“Imperial Brands shaved down its profit forecasts for the year to September 2025 back in May, alongside the first-half results, thanks to a greater-than-expected impact from foreign exchange movements, but the company has stuck to its underlying forecasts for growth in both operating profit and earnings per share in this year-end update.
Source: Company accounts, Marketscreener, Vuma, consensus analysts' estimates. Financial year to September.
“The second was the shares’ lowly starting point, valuation-wise, when Mr Bomhard took the helm in 2020, and the valuation paid to access a share of a company’s profits, cash flow and assets is the ultimate arbiter of investment return.
“Even after the strong gains of the past five years, Imperial Brands still trades on barely nine times forward earnings for the year to September 2026, with a forward dividend yield of 5.6%, according to analysts’ consensus forecasts. That represents a discount to the wider FTSE 100 on an earnings basis and a premium when it comes to yield. These metrics reflect the risks inherent in Imperial Brands’ business model, as it tries to manage regulatory and health-related pushback, combat falling volumes and manage the transition to NGPs, and the discount multiple and premium yield are probably merited, given the remaining dangers, despite the company’s demonstration over the past five years of how it can meet and overcome them.
“The dividend cut of 2020 is now fading from memory, as analysts expect increases in the annual distribution both for the financial year just ended and the one that has just begun.
Source: Company accounts, Marketscreener, Vuma, consensus analysts' estimates. Financial year to September.
“The new management team is also confident enough to announce a fourth consecutive annual share buyback programme worth more than £1 billion. This is the biggest of the lot, too, at £1.45 billion for the year to September 2026. Add that to the payment implied by analysts’ dividend per share forecast and Imperial Brands is on track to return some £2.7 billion to shareholders in the coming 12 months, or more than 11% of its stock market capitalisation.
Source: Company accounts, Marketscreener, Vuma, consensus analysts' estimates. Financial year to September.
“Again, this is possible because of strong cash flow, which comfortably covers the dividend. It even – just – covered the dividend in 2019 before the swingeing cut, but Mr Bomhard and the board wisely took the view back then that long-term investment in the business was a better option than clinging to the millstone of an extremely high yield, for which the firm was getting no credit from investors anyway, judging by how the share price was sliding ever lower.”
Source: Company accounts. Financial year to September.
