Imperial Brands IMB announced fiscal 2024 earnings that delivered on promises that results would be weighted toward the back half of the year. For fiscal 2025, the company expects single-digit net revenue growth and mid-single-digit adjusted operating growth, both on a constant-currency basis.
• Fair Value Estimate: £27
• Morningstar Rating: ★★★
• Economic Moat: Wide
• Morningstar Uncertainty Rating: Medium
Why it matters: Entering the final year of its current five-year plan, Imperial has delivered on its goals for maximizing free cash flow generation and returning capital to shareholders. Its core tobacco business continues to deliver solid profits, while next-generation product losses have narrowed.
The fiscal 2025 buyback of £1.25 billion will push the total shareholder return to about £10 billion, roughly two thirds of its market cap five years ago. We forecast the company could return nearly £15 billion over the next five years.
Tobacco volume declines have eased, and we expect them to decline toward a mid-single-digit rate closer in line with historical averages. Meanwhile, although next-generation products remain small contributors, Imperial grows closer to breakeven, which should benefit margins.
The bottom line: We’ve raised our fair value estimates to £27, up from £23. The upgrade mostly stems from slightly better top-line growth and wider profit margins than we previously forecast.
Given Imperial’s market share gains across its five priority markets while still pushing price increases that have largely fallen to the bottom line, we now forecast five-year sales growth and midcycle adjusted operating margins of 0.4% and 44.6%, up from negative 0.3% and 43.3%, respectively.
Imperial shares look fairly valued to us. For investors looking for tobacco exposure, we still see attractive upside in wide-moat British American Tobacco. We think the market underestimates its next-generation product portfolio by overly comparing it to wide-moat Philip Morris.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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