Is There Still Time To Buy Imperial Tobacco Group PLC?

Right now I’m looking at some of the most popular companies in the FTSE 100 and wider market to try and establish if there is still time for investors to buy in.

Today I’m looking at Imperial Tobacco Group PLC (LSE: IMT) (NASDAQOTH: ITYBY.US) to ascertain if its share price has the potential to push higher. 

Current market sentimentbritish american tobacco / imperial tobacco

The best place to start assessing whether or not Imperial’s share price has the potential to push higher, is to take a look at the market’s current opinion towards the company.

It would appear that the market has suddenly taken a liking to Imperial, as after several years of poor performance, Imperial’s shares have recently surged to within inches of a five year high.

It seems as if this change in sentiment can be traced back to two main catalysts. Firstly, Imperial released an upbeat interim management statement at the beginning of February, which outlined the company’s plans for growth, as well as plans to cut costs by £300m per annum by 2018.

The second catalyst that seems to have had an effect on Imperial’s shares is the renewed speculation of merger activity within the tobacco sector.

In particular, it emerged earlier this year that Reynolds American, the US’s second largest tobacco company was considering a bid for Lorillard, its smaller domestic peer. Many investors took this to mean that a bid for Imperial, which has long been the subject of takeover rumours, could be just around the corner.

Upcoming catalysts

Nevertheless, it’s rarely a good idea to invest purely on takeover speculation. So, what upcoming factors are likely to drive Imperial’s shares higher in the near future? 

Well firstly, Imperial’s next market update will show investors what sort of an effect the company’s restructuring plan is having on the business, along with any positive developments, and this is likely to have an effect on the company’s share price. 

Additionally, there has been chatter that Imperial will spin off parts of the company’s low margin European distribution business. Indeed, City analysts believe that Imperial intends to seek an IPO for Compañia de Distribución Integral Logista SA, the company’s Spanish distribution arm. It is likely that any proceeds from this disposal will be returned to shareholders. 


What’s more, despite the fact that Imperial’s shares are closing in on a five year high, the company still trades at a relatively low valuation.

Specifically, Imperial currently trades at a forward P/E of 12.1, below that of the FTSE 100 on 13.3. Further, Imperial looks cheap when compared to its only London listed peer, British American Tobacco which currently trades at a forward P/E of 15.8.  

Foolish summary

Overall, I feel that there is still time to buy Imperial Tobacco.

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In the meantime, please stay tuned for my next verdict.

Rupert owns shares in Imperial Tobacco.