The Imperial Brands (LSE: IMB) share price is up 2% as I write, on FY results day (19 November).
That’s not huge, but we’re looking at 36% so far in 2024 and 40% in the past five years.
And the dividend is up 4.5% this year to 153.42p, for a 6.25% yield on the current price.
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Not extinguished yet
That’s a strong look for an industry that’s supposed to be dying. If true, Imperial Brands’ customers don’t seem to have noticed.
Net revenue from tobacco and next-generation products rose 4.6%. That’s on an adjusted basis and using constant currency. In a multinational company like this, I think that’s probably a better measure of actual performance.
Earnings per share rose 10.9% on the same basis (up 19% on a reported basis).
New products
CEO Stefan Bomhard spoke of “aggregate market share gains across our five priority markets.” A pool of firms competing for a falling market in traditional smoking products can’t be a good model for long-term profit, and that’s where next-generation products come in.
He added: “In next-generation products (NGP), we continue to build scale across our footprint with net revenues up 26.4% at constant currency driven by growth from all three regions and market share growth in all three categories.“
That eases one of my concerns. Imperial didn’t seem to be putting in the same urgency as rival British American Tobacco. But we’re getting there.
The future
The board said: “In the coming year, we expect to deliver tobacco and NGP net revenue growth at low single-digit constant currency and to grow our group adjusted operating profit close to the middle of our mid-single-digit range at constant currency.“
After that? “We are now working on our strategy for the next five-year period through to 2030.“
So it’s all about developing new products that are less damaging to health and more socially acceptable. Then keeping market share going.
Things look to be going well, but I still have my fears.
Attractive valuation
The share price has recovered well this year. But with forecast price-to-earnings (P/E) ratios of around 10, and a dividend yield over 6%, it still looks attractive to me. I do think the ‘screaming cheap’ days are over, mind.
When it comes to dividends, cash is key, and Imperial is a champion of that. Free cash flow in the year just ended reached £2.4bn.
Be aware, however, that there’s £8.3bn net debt on the books. Not huge compared to a £20bn market cap. But I’d watch carefully for any sign of it creeping up.
Long-term income
The big fear remains over the long-term future of the tobacco industry. And Western governments seem increasingly keen to put more hurdles in the way of these new products.
I can still see the cash and dividends continuing for a good while yet. I won’t buy for personal reasons. But I reckon Imperial Brands has to be worth considering for passive-income investors who can do their own research and weigh up the risk.
