Imperial Brands: Fundamentals And Stock Attributes Are Positive

Core Viewpoint - Imperial Brands has demonstrated strong stock market performance, with total returns of 30% over the past year, comparable only to Japan Tobacco, while outperforming Philip Morris [1] Group 1: Financial Performance - The company's first half (H1 FY24) results showed a 5.6% increase in stock price, marking the largest single-day rise in the past year, despite some weaknesses in the numbers [4] - Reported revenue decreased by 2.3% due to adverse currency trends and declining volumes, but net revenue growth for tobacco and next-generation products (NGPs) increased by 2.8% at constant currency [5][9] - An 8.6% increase in tobacco pricing compensated for a 6.3% decline in volume, indicating strong pricing power amid a challenging economic environment [6][7] Group 2: Next-Generation Products (NGPs) - NGP revenue grew by 16.8%, although the Americas market faced challenges due to a Marketing Denial Order from the FDA, leading to a 25% drop in NGP revenues [10] - Excluding the Americas, NGP revenue growth was approximately 22%, and the share of NGPs in total revenue increased by 0.5 percentage points to 3.9% in H1 FY24 [11][12] Group 3: Valuation Metrics - The stock's forward P/E ratios are attractive, with a non-GAAP ratio of 7.3x and a GAAP figure of 7.7x, both lower than peers like Philip Morris and Altria [13][14] - The stock is trading below its 10-year average forward P/E of 8.9x, indicating a potential price upside of 22% [15] Group 4: Dividend Growth - The company increased its interim dividend by 4%, resulting in a forward dividend yield of 7.8%, which remains a significant aspect of total returns for investors [16][17] - Over the past five years, total returns have been 60%, highlighting the importance of dividends and share buybacks in overall performance [17] Group 5: Future Outlook - The company's pricing power and gradual increase in the share of tobacco substitutes in revenues are encouraging, especially in light of economic challenges in major markets [18][20] - The stock's attributes, including attractive forward P/Es and dividend yields, suggest continued potential for price appreciation and investor returns [20]