Is Imperial Tobacco Group PLC Dead In The Long Term?

With smoking under attack worldwide, is Imperial Tobacco Group PLC (LON:IMT) running a sustainable business?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

A business steeped in history, death and misery

After a long and complicated corporate history that dates back to the beginning of the 20th century, Imperial Tobacco (LSE: IMT)(NASDAQOTH: ITYBY.US) was spun out of the conglomorate Hanson Trust in 1996. Today the company employs 37,000 people and owns some of the world’s most successful tobacco brands.

The problem is that smoking kills. Many consumers can hardly afford the product and only buy because they are addicted. Ethical and public health concerns are forcing governments worldwide to increasingly tighten the rules around marketing, sale and consumption of tobacco products. Add in the threat posed by e-cigarettes and you have a toxic profit-destroying cocktail.

Pain, no gain but dividends to die for

Now it is shareholders’ turn to feel the pain. In the last two years, shares in Imperial Tobacco have broadly gone nowhere. So far this year, the stock is unchanged while the FTSE 100 is 13% higher.

However, Imperial has not disappointed income investors. The company has been paying a growing dividend since 2003. With its interims earlier this month, the company confirmed its intention to increase dividends annually by “by at least 10 per cent per year over the medium term.”


Unfortunately, the outlook for earnings growth is less impressive. Forecasts for 2014 profits have been falling month-on-month for the last year. Twelve months ago, analysts were forecasting earnings per share of 232p from the company. Today, that is 217p. While that s a cut of just 6.5%, the reduction in expected growth is significant.

With anti-smoking regulations tightening worldwide, for how much longer can Imperial continue to deliver profit growth?


The sector has wobbled recently following some bearish comment from US giant Philip Morris. The Marlboro-maker has forecast big sales declines in Europe, including an eye-catching forecast of a fall of as much as 11% in Russia next year.

Government controls, tax rises (encouraging counterfeiting) and consumers having better access to education will prolong this trend.

Add in the rise of less profitable alternatives (e-cigarettes) and the long-term outlook for industry is bleak. I expect Imperial to be priced as an ex-growth stock within two years. Moreover, I am confident that once growth leaves this business, it will never come back.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> David does not own shares in any of the companies mentioned.

More on Investing Articles

Middle-aged Caucasian woman deep in thought while looking out of the window
Investing Articles

Should I buy these UK shares for my portfolio?

This Fool has been searching for ways to capitalise on the commodity moves via UK shares. Here’s what he’s watching.

Read more »

Illustration of flames over a black background
Investing Articles

Just released: April’s higher-risk, high-reward stock recommendation [PREMIUM PICKS]

Fire ideas will tend to be more adventurous and are designed for investors who can stomach a bit more volatility.

Read more »

A senior group of friends enjoying rowing on the River Derwent
Investing Articles

£9,000 in savings? Here’s a FTSE 100 stock I’d buy to target a £30,652 annual second income!

Our writer highlights one top FTSE 100 share that he thinks could help create a portfolio large enough for a…

Read more »

Light bulb with growing tree.
Investing Articles

62% down! Is the Ceres Power share price now a green energy bargain?

Annual results from the green energy firm showed a company on the cusp of doubling sales. So why has the…

Read more »

Investing Articles

3 mid-cap UK defence shares to consider buying in 2024

Defence budgets are soaring as global conflicts increase the threat landscape, so I'm examining the value proposition of three defence-related…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

Hargreaves Lansdown investors have been buying dividend stocks BP and Shell. Should I?

Cherished dividend stocks BP and Shell have outperformed the FTSE 100 index so far in 2024. Paul Summers takes a…

Read more »

Young Asian man shopping in a supermarket
Dividend Shares

A 5% yield? Here’s the 3-year dividend forecast for Tesco shares

Jon Smith flags up the positive momentum for Tesco shares following the release of the full-year results and looks at…

Read more »

Investing Articles

Yields up to 12.3% 3 top shares investors should consider for a second income

Searching for ways to make a market-beating second income? These popular dividend stocks are worth serious consideration, says Royston Wild.

Read more »