Imperial Brands Shares Climb Following Strong FY24 Update

Shares of Imperial Brands experienced an increase on Tuesday following a pre-close trading update that confirmed the company is on track to meet its full-year guidance and plans to enhance capital returns to shareholders for the fiscal year 2025.

As of 4:43 am, Imperial Brands’ stock was up by 3.9%, trading at £2,231.

The tobacco company highlighted growth in both its traditional tobacco business and its next-generation products, with strong revenue performance and an increase in operating profit.

Analysts from RBC Capital Markets expressed their reassurance regarding Imperial Brands’ performance, noting that the fiscal year 2024 guidance was reaffirmed as expected and that shareholder returns will increase for fiscal year 2025. However, they mentioned that foreign exchange guidance was slightly more negative than current consensus expectations.

The trading update, released ahead of the company’s full-year results scheduled for November, instilled confidence among investors as it demonstrated continued progress in the company’s five-year transformation strategy.

Imperial Brands maintained stable overall market share in its five priority markets, which include the U.S., Spain, and Australia, benefiting from strong pricing power that offset volume pressures. Gains in these markets helped mitigate declines in Germany and the U.K., allowing the company to retain its market position.

There was also notable improvement in the company’s next-generation products (NGP) sector, with net revenue anticipated to grow by 20-30% at constant currency. The company is actively investing in innovative products, including new formats under the blu brand, iSenzia non-tobacco heat sticks, and new flavors in its modern oral product offerings. Furthermore, the recent launch of Zone oral nicotine pouches in the U.S. has received a positive response, aiding the company’s expansion in this category.

A significant highlight for shareholders was the announcement of enhanced capital returns for fiscal year 2025. Imperial Brands revealed plans for a £1.25 billion share buyback, marking a 13.6% increase from the previous year, which corresponds to about 7% of its current share capital. Additionally, a planned dividend payout of £1.5 billion reflects the company’s confidence in financial performance and commitment to increasing shareholder returns, with the dividend raised by 4.5% to 153.43 pence per share.

Another notable change is the transition to a quarterly dividend payment structure starting in fiscal year 2026. In fiscal year 2025, Imperial will distribute two interim dividends of 40.08 pence per share in June and September to establish this new schedule, providing smoother cash flow for investors. This adjustment aims to minimize leverage fluctuations throughout the year.

Imperial Brands also reported improved adjusted operating profit for the second half of the fiscal year, supported by strong results from all regions, including a recovery in the AAACE region, where shipment timing had impacted the first half.

The company continues to benefit from its significant stake in a Spanish-based distribution business, contributing to its profit growth.

Despite these positive developments, the company did note a slight challenge from foreign exchange rates, which are expected to have a 2.5-3.0% impact on full-year net revenue from tobacco and NGP and a 4.0% effect on adjusted operating profit.

Overall, performance remains strong, with robust adjusted operating cash conversion, and leverage anticipated to remain at the lower end of the company’s target range for net debt to EBITDA.