The Motley Fool

Is Imperial Tobacco Group PLC Dead In The Long Term?

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.

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.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

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.”

Forecasts

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?

Verdict

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.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

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

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.