EUR 57.00 For Business Accounts Only

Imperial Brands - E news equals encouraging

Imperial Brands (IMB LN, BUY, T/P 5100p), whose flagship next generation product and e-cigarette brand is BLU, should receive some encouragement from today’s NHS Scotland release. NHS Scotland appears overall in favour of e-cigarettes being used as a cessation product – i.e. an alternative to combustibles. NHS Scotland’s comments echo those recently made by Public Health England that e-cigarettes are up to 95% less harmful than combustibles.

The key issue for e-cigarettes as a category is arguably acceptability – either voluntary or regulated. For as long as e-cigarettes receive similar treatment as combustibles, their volume growth may be hampered. For example, a number of “smoking” bans apply equally to e-cigarettes as combustibles. In our view, positive health findings should improve public perception and aid volumes.

Imperial Brands’ own offering is arguably robust. The company received criticism for being less active in heat-not-burn than international peers. This is probably inevitable given Imperial Brands is relatively small in Japan, where e-cigarettes are illegal. Moreover, IQOS – PMI’s heat-not-burn product – is being positioned in the UK as a cessation product rather than one to suit a longer term taste for less harmful nicotine consumption. Imperial Brands’ BLU e-products should benefit further from NPD both in terms of devices and flavours.

Imperial Brands is due to release a trading statement on 28th September ahead of its end-month year end. British American Tobacco (BATS LN, HOLD, T/P 5300p) may fuel the e-cigarette debate further when it hosts a dinner and investor day in London on 24th and 25th October respectively. Relative acceptablitity remains vital to the growth case.

We reiterate our BUY recommendation for Imperial Brands: its strong core, a lively NGP programme and a total commitment to financial discipline remain central to this positive view. Imperial Brands trades on a 13x calendar 2018 P/E which represents a discount to a 16x average 2018 P/E for its sector. We base our 5100p price target on a 20.0x calendar 2018 P/E. BUY.