Imperial Brands' Trading Update

Shares of Imperial Brands (LON:IMB) rose on Tuesday following the company’s pre-close trading update, confirming it was on track to meet its full-year guidance while increasing capital returns to shareholders for FY25.

At 4:43 am (0843 GMT), Imperial Brands was trading 3.9% higher at £2,231.

The tobacco giant flagged growth in its traditional tobacco business and next-generation products segment, with strong revenue performance and an uplift in operating profit.

> “We are reassured by Imperial Brands' in-line performance, with FY24 guidance being reiterated as expected, and increased shareholder return for FY25. Meanwhile, FX guidance is slightly more negative than consensus currently expects,” said analysts at RBC Capital Markets in a note.

The company’s trading update, ahead of its full-year results set to be announced in November, reassured investors that it continues to deliver on its five-year transformation strategy.

Imperial Brands reported stable aggregate market share in its five priority markets, including the U.S., Spain, and Australia, with solid pricing strength offsetting volume pressures.

Additionally, gains in those markets have compensated for declines in Germany and the UK, helping maintain the company's market position.

Imperial Brands also saw marked improvement in its NGP segment, with net revenue expected to grow between 20-30% at constant currency.

The company has been investing in innovative products such as new formats under its blu brand, the iSenzia non-tobacco heat sticks, and new flavors in its modern oral offerings.

The launch of the Zone oral nicotine pouches in the U.S. has been well-received, supporting the company’s efforts to expand in this category.

A key takeaway for shareholders was the announcement of increased capital returns for FY25. Imperial Brands revealed plans for a £1.25 billion share buyback, a 13.6% increase compared to the prior year, representing approximately 7% of its current share capital.

This, along with a planned dividend payout of £1.5 billion, reflects the company’s confidence in its financial performance and commitment to boosting shareholder returns.

The dividend has also been increased by 4.5% to 153.43 pence per share.

Another shift is moving to a quarterly dividend payment structure starting in FY26. In FY25, Imperial will issue two interim dividends of 40.08 pence per share in June and September, allowing for smoother cash flow to investors.

This change will help reduce leverage fluctuations throughout the year.

Imperial Brands’ update also flagged that its adjusted operating profit improved in the second half of the fiscal year, bolstered by strong results across all regions, including a recovery in the AAACE region, where shipment timings had impacted the first half.

The company continues to benefit from its 50.01% stake in the Spanish-based distribution business Logista, contributing to profit growth.

Despite these positives, the company flagged a slight headwind from foreign exchange rates, impacting full-year tobacco and NGP net revenue by 2.5-3.0% and adjusted operating profit by 4.0%.

Nevertheless, its overall performance remains strong, with adjusted operating cash conversion robust, and leverage expected to remain at the lower end of the company’s 2.0-2.5 range for net debt to EBITDA.