This morning (14 October), Imperial Brands (LSE:IMB) released its full-year results. The reaction in the Imperial Brands share price has been somewhat muted so far, with it flat on the day. Over the past year the stock is down 10%, but there are several reasons why I think it looks attractive right now.
Good overall results
Even though revenue for the year was broadly flat versus 2022, there were plenty of positives. Operating profit jumped by 26.8%, showing that the company has a tight control over the costs of goods sold. This benefit filtered down to the bottom line, with earnings per share increasing by 52.1%.
The main driver behind this was the 26% rise in next generation product net revenue. Particularly in Europe, this product range (focusing on non-traditional tobacco products) is doing very well.
One concern is the fact that this division is still losing money. Higher investment due to product launches and development meant the full-year the loss was £135m. It really does need to flip to being profitable soon.
High income potential
The results today outlined a 4% increase in the dividend per share. When I take into account the current share price, it makes the yield attractive. At 8.21%, it’s one of the highest yields in the entire FTSE 100.
In some cases, a high yield doesn’t look that sustainable. Yet for Imperial Brands, I think that this yield could be maintained. This is because the share price isn’t exceptionally volatile. If the yield was high because the stock was down 50% over the past year, I’d be concerned that the dividend could be cut.
Yet with strong results and a steady stock price, I don’t see any major reasons for concern for the income potential. In fact, the only risk I see is that the yield could fall due to the share price rallying over the next year.
Low price-to-earnings (P/E) ratio
The P/E ratio is a good gauge of the value of a stock. A figure below 10 usually leads me to conclude that the specific company is undervalued. Of course, I need to be careful about just using this one statistic when making an investment choice.
Using the latest earnings per share figure of 252.4p, the P/E ratio for Imperial Brands is 7.08. I don’t think this fully reflects the resilience of the business and the value it can have going forward.
For example, tobacco companies typically have good demand even during an economic downturn. This makes them attractive defensive stock picks for my portfolio.
I think the share price could rise over the coming year. As investors catch on to the fact that it’s a good defensive play and pays out income, the stock could outperform. I’m thinking about buying it in the near future for my portfolio.
