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Imperial Brands: Conference Highlights And Why 11.9% Yield Is Not Enough

Published Tue, 25 Feb 2020 16:11:40 -0500 on Seeking Alpha

Data from the CAGNY conference shows e-vapor still decelerating in the U.S. and elsewhere, which may benefit tobacco stocks in the short term.
Imperial Brands is trying to expand in several Next Generation Product categories, on a “fast-follower” model that likely lacks speed and scale.
Altria is planning a third U.S. market launch for IQOS, and is scaling up in modern oral tobacco, threatening Imperial's business in the U.S.
Philip Morris shared details on IQOS’ global progress, and will launch in e-vapor this year, a growing threat to Imperial outside the U.S.
At 1,729p, Imperial has an 11.9% Dividend Yield and a valuation discount vs. peers that reflects its fundamental weaknesses. Reiterate Neutral.
(We previously wrote about Imperial Brands as "Blue Sky Capital")
Introduction
We revisit Imperial Brands (OTCQX:IMBBY) (referred here as "IMB") 3 months after our last note ("Imperial Brands: Still The Worst Of The Big 4 Tobacco Stocks"), and following IMB's as well as other tobacco companies' presentations at the CAGNY (Consumer Analyst Group of New York) conference last week.
Since our initial Neutral rating in July 2019, IMB shares have significantly underperformed Philip Morris (PM), our preferred pick among tobacco stocks on which we have had a Buy rating through this period. IMB's share price has fallen by double-digits and, even including dividends (175.3p), they have lost 1.7% of their value during strong equity markets in 19H2:
IMB Share Price vs. PM & FTSE All-Share (Since 02-Jul)

Source: Yahoo Finance (21-Feb-20).

Neutral Case Recap
Our Neutral rating in July centred on fundamental business problems at IMB:
IMB is mostly present in local markets with unfavourable demographics or regulations; its profit growth was weak even before the rapid rise of vaping. Its Next Generation Products ("NGPs") may not contribute much profit, being loss-making at present and uncompetitive against its... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
ALTRIA GROUP 44.46   13.2 3.36 3.36 7.23
BRITISH AMERICAN TOBACCO 37.99   0.0 0.00 2.68 6.64
PHILIP MORRIS INTERNATIONAL 74.90   14.9 5.03 4.68 6.12
SWEDISH MATCH AB 21.73   0.0 0.00 0.00 0.00

ALTRIA GROUP - MO
ALTRIA GROUP - MO  


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