The Motley Fool

How has my top UK share for 2020 performed? And would I buy this stock in 2021?

Image source: Getty Images

At the turn of the year, I liked the look of Imperial Brands (LSE:IMB) and chose it as my top UK share for 2020. Sadly, I’m now questioning my choice. It went into a decline from mid-January until the March market crash. By mid-April it had risen 37%, only to head south again. The tobacco giant’s share price has seen extreme volatility this year. It sunk to even lower lows in September and again in November, from which it has now recovered another 28%.

No longer a top UK share

Imperial Brands’ financial year runs to 30 September, and the first six months were disappointing. It took a more disciplined approach to promoting its next-generation cigarette alternatives, reducing its losses in the second half of the year. This led to overall group net revenue being up 0.8%. The menthol ban that came into force in May didn’t have a significant impact on the business, as it only contributed to 3%-4% of its volumes.

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...

Earlier in the year, Imperial Brands cut its dividend to help reduce its debt. At today’s share price, the dividend yield is a hefty 8.7%. However, it’s only covered once by earnings, so if 2021 profits are not as good as hoped, then it could be at risk of another cut.

Imperial Brands has a price-to-earnings ratio below 10, which, along with the high dividend yield, could make it appealing to value investors. Its earnings per share are £1.58.

Growth potential but headwinds are strong

Imperial Brands continues to have some growth potential through its focus on next-generation alternatives to cigarettes. However, sales of these products were down in its latest interim report released in November. Its tobacco sales were showing signs of improving as the lockdown encouraged consumers to increase their spends on entertaining at home. This trend may not continue as normality resumes.

Imperial Brands has been an income fund favourite of institutional investors for decades, but pressure is mounting on them to unload. It’s also facing increasing regulatory headwinds on its e-cigarettes and alternatives to traditional tobacco products. 

The business is resilient a result of the addictive nature of its products, but the ethical shift away from investing in tobacco is significant. This means it’s an industry in decline, and I no longer like it as an investment.

A stock with considerable debt

Imperial Brands recently divested its premium cigars business for €1.25bn of which it put €1.1bn towards paying down its debt. It also appointed a new non-executive director. Alan Johnson will take up the position from 1 January.

From an ethical perspective, I’m not comfortable investing in tobacco, having listened to various discussions on the matter. It’s very much a personal choice, but retail investors are shifting towards investments that meet their ethical boundaries. Therefore, I’d not consider buying shares in Imperial Brands in 2021.

There are plenty of great UK shares to buy and I prefer the 2021 outlook for small-cap growth stocks such as Cake Box and Genus or FTSE 250 star PZ Cussons.

For regular Motley Fool share tips and help with choosing the best UK shares to buy now, sign up to the Motley Fool today.

A Top Share with Enormous Growth Potential

Savvy investors like you won’t want to miss out on this timely opportunity…

Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this ‘pure-play’ online business (yes, despite the pandemic!).

Not only does this company enjoy a dominant market-leading position…

But its capital-light, highly scalable business model has previously helped it deliver consistently high sales, astounding near-70% margins, and rising shareholder returns … in fact, in 2019 it returned a whopping £150m+ to shareholders in dividends and buybacks!

And here’s the really exciting part…

While COVID-19 may have thrown the company a curveball, management have acted swiftly to ensure this business is as well placed as it can be to ride out the current period of uncertainty… in fact, our analyst believes it should come roaring back to life, just as soon as normal economic activity resumes.

That’s why we think now could be the perfect time for you to start building your own stake in this exceptional business – especially given the shares look to be trading on a fairly undemanding valuation for the year to March 2021.

Click here to claim your copy of this special report now — and we’ll tell you the name of this Top Growth Share… free of charge!

Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands and PZ Cussons. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Where to invest £1,000 right now

Renowned stock-picker Mark Rogers and his select team of expert analysts at The Motley Fool UK have just revealed 6 "Best Buy" shares that they believe UK investors should consider buying NOW.

So if you’re looking for more top stock ideas to try and best position your portfolio in this market, then I have some good news for your today -- 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 enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.