reports
- Philip Gorham
Imperial's wide moat should help it catch up in heated tobacco.
The 5% rally in Imperial Brand's stock following a solid mid-fiscal year report will be scant consolation for shareholders that have owned Imperial as it has underperformed even the out-of-favour tobacco category since the turn of the year. Nevertheless, the company's update confirmed that the worst of its struggles are behind it, market share is growing, price/mix is rebounding strongly, combustible volumes are stabilizing, the vaping pipeline is strong, cash conversion is impressive, the divid...
- Philip Gorham
- CFA
- FRM
Imperial Building Momentum But Must Now Deliver Pricing if Huge Upside...
The 5% rally in Imperial Brand's stock following a solid mid-fiscal year report will be scant consolation for shareholders that have owned Imperial as it has underperformed even the out-of-favour tobacco category since the turn of the year. Nevertheless, the company's update confirmed that the worst of its struggles are behind it, market share is growing, price/mix is rebounding strongly, combustible volumes are stabilizing, the vaping pipeline is strong, cash conversion is impressive, the divid...
- Philip Gorham
- CFA
- FRM
Imperial's Wide Moat Should Help it Catch Up in Heated Tobacco
Imperial Brands and British American Tobacco both declined at a low-single-digit rate in Wednesday's trading after reports Palmer and Harvey, P&H, the U.K.'s largest tobacco wholesaler, had gone into administration. While it is unlikely the tobacco manufacturers will suffer much, if any, operational disruption, they are not likely to be able to recoup excise taxes paid on product shipped to P&H. We have adjusted our valuation models accordingly, but the one-time impacts are immaterial to...
- Philip Gorham
- CFA
- FRM
Collapse of P&H Immaterial to Our Tobacco Valuations; Imperial Remains...
Imperial Brands and British American Tobacco both declined at a low-single-digit rate in Wednesday's trading after reports Palmer and Harvey, P&H, the U.K.'s largest tobacco wholesaler, had gone into administration. While it is unlikely the tobacco manufacturers will suffer much, if any, operational disruption, they are not likely to be able to recoup excise taxes paid on product shipped to P&H. We have adjusted our valuation models accordingly, but the one-time impacts are immaterial to...
- Philip Gorham
- CFA
- FRM
Plenty of Positives in Best Idea Imperial's Preliminary Report Amid Mo...
Imperial Brands' preliminary results for the fiscal year ended Sept. 30 demonstrated on a number of levels why the firm is our pick of the European consumer staples group. Modest outperformance on the top line, the surprise announcement of an entry into heated tobacco, respectable execution in challenging markets, and continued capital discipline all support our investment thesis, and we continue to believe Imperial is undervalued. We have tweaked our sales forecasts higher and our margin assump...
- Philip Gorham
- CFA
- FRM
Adding Wide-Moat Imperial Brands to Best Ideas as Market Overlooks Com...
We are adding wide-moat Imperial Brands to our Best Ideas list because we think the valuation multiple discount to competitors has become too large to ignore. Investors are quite rightly focused on the emergence of heated tobacco, but are underestimating the power of Imperial's wide economic moat, as its competitive advantages of brand equity and in the supply chain should allow it to enter the heated tobacco category if it takes off in core geographies. We are also removing Danone from the list...
- Philip Gorham
- CFA
- FRM
A multiple discount to peers is appropriate for Imperial, but not one ...
We are fairly sanguine about the impact on tobacco manufacturers' long-term cash flows from the U.S. Food and Drug Administration's announcement that it intends to lower levels of nicotine in cigarettes, and we maintain our wide moat ratings and fair value estimates. Such measures are likely to accelerate the migration of smokers to substitute products, and we expect Big Tobacco to continue dominating the industry. Although we do not believe the valuations of Altria and BAT have been impaired by...
- Philip Gorham
- CFA
- FRM
FDA's Nicotine Strategy Has Limited Impact on Tobacco; Pullback Reflec...
We are fairly sanguine about the impact on tobacco manufacturers' long-term cash flows from the U.S. Food and Drug Administration's announcement that it intends to lower levels of nicotine in cigarettes, and we maintain our wide moat ratings and fair value estimates. Such measures are likely to accelerate the migration of smokers to substitute products, and we expect Big Tobacco to continue dominating the industry. Although we do not believe the valuations of Altria and BAT have been impaired by...
- Philip Gorham
- CFA
- FRM
Imperial Undershoots in 1H, but Improvement Priced Into Valuation
Imperial Brands narrowly undershot our volume forecast in the first half of its fiscal year, and we are lowering our near-term organic growth assumptions. This is immaterial to our valuation, however, and we are maintaining our GBX 3,900 fair value estimate for the London-traded ordinary shares. Although Imperial has suffered below-market declines in several markets in recent quarters, the company’s scale provides it with a cost advantage over regional manufacturers that should give it the fin...
- Philip Gorham
- CFA
- FRM
Imperial's Preclose Update Indicates Firm Is on Track in 1H; Shares Fa...
Imperial Brand's preclose update shed little light on the company's recent trading performance, but noted that it is in line to meet expectations for the first half of the fiscal year, which closed on March 31. As we forecast revenue growth only slightly below that of consensus, we do not plan to make any adjustments to our estimates or of our GBX 3,900 and $50 fair value estimates for the ordinary shares and ADRs, respectively. With the rest of the Big Tobacco industry trading above our fair va...
- Philip Gorham
- CFA
- FRM
Imperial appears to be gaining share in the U.S. without aggressive pr...
Imperial's U.S. assets continued to support results in the second half of the fiscal year ending September 2016 in line with our forecasts for both sales and earnings per share, and we are maintaining our GBX 3,900 fair value estimate for the ordinary shares but lowering our valuation of the ADRs to $48 from $50 to account for the continued recent weakness in sterling against the U.S. dollar. Imperial has strong competitive advantages, including a cost advantage and some regulatory protection f...
- Philip Gorham
- CFA
- FRM
Value of U.S. Deal Evident Again as Imperial Finishes Fiscal 2016 in L...
Imperial's U.S. assets continued to support results in the second half of the fiscal year ending September 2016 in line with our forecasts for both sales and earnings per share, and we are maintaining our GBX 3,900 fair value estimate for the ordinary shares but lowering our valuation of the ADRs to $48 from $50 to account for the continued recent weakness in sterling against the U.S. dollar. Imperial has strong competitive advantages, including a cost advantage and some regulatory protection f...
- Philip Gorham
- CFA
- FRM
BAT Makes Approach to Reynolds American; Offer Looks Slightly Rich at ...
British American Tobacco announced that it has made an offer to acquire the remaining 57.8% of Reynolds American it does not already own for a total consideration of $47 billion, or $56.50 per share. Our initial impression is that the deal is slightly rich, and we may adjust our fair value estimate for BAT when we have combined the DCF models. However, the deal would create a truly global tobacco giant, merging two wide-moat companies, and would slightly enhance BAT's competitive positioning. Th...
- Philip Gorham
- CFA
- FRM
Imperial Bucks Trend and Pursues Brand Purge Strategy; Cost Opportunit...
Although we believe the opportunities are priced into the stock of Imperial Brands, we continue to admire the strategies being pursued at this wide moat-rated company. We think the current efficiency drive will offset volume declines and catapult Imperial to the top tier of global cigarette manufacturers, with EBIT margins in the high 30% range by the end of our five-year forecast period. Its simplified product portfolio should also lend support to its cost advantage, a key source of our wide ec...
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