Core Viewpoint - IMBBY's investment thesis remains strong, supported by a growing cash flow and strategic management decisions that enhance profitability and shareholder returns [1][5][14] Group 1: Financial Performance - IMBBY reported a 12-month cash flow of £3.72 billion, reflecting a sequential increase of 26.5% and aligning with FY2019 levels [1] - The annualized dividend obligation stands at £1.82 billion, consistent sequentially but down 5.2% from FY2019, partly due to lower share counts [1] - The company has announced a 4% increase in its interim dividend and aims for a net-debt-to-EBITDA ratio of 2x by the end of 2024, down from the current 2.5x [1] Group 2: Market Position and Strategy - IMBBY has achieved a 1-year stock price return that outperforms its tobacco peers, attributed to its ability to grow market share in key regions and return value to shareholders through buybacks and dividends [5] - The company reported a 6.3% year-over-year decline in tobacco volumes but a 2.3% increase in net revenues, driven by an 8.6% rise in pricing [5] - IMBBY's Next Generation Products account for only 3.9% of net revenues, indicating room for growth despite current unprofitability [5] Group 3: Competitive Landscape - The oral tobacco market in the US is projected to grow from 18 billion by 2027, with a CAGR of 31.6%, presenting an opportunity for IMBBY's new product 'zone' [5] - IMBBY's management emphasizes a focused strategy, maintaining profitability in five key markets that contribute over 70% of its earnings [5] Group 4: Valuation and Future Outlook - IMBBY's forward P/E ratio has recovered to 7.96x from a low of 5.49x, still below its 3-year pre-pandemic average of 11.56x, indicating potential undervaluation [13] - The consensus estimates suggest an adjusted EPS growth CAGR of 7.3% through FY2025, which is considered achievable given the company's performance [5][13] - A bull-case price target of $39.10 implies a potential upside of 46.4%, reflecting strong investor interest despite recent stock price increases [13][14]
Imperial Brands: Betting On The Smaller & Focused Tobacco Stock