Imperial Brands Half Yearly Report

[Dod101]

Arb is very right I am sorry to say. If we abandon tobacco the pool of HYP shares is getting to the stage when it will be calling in to question the whole HYP strategy. It is obvious that the whole tobacco sector is out of favour and the market is very nervous. First it was BAT and the US regulator and now discomfort over the lack of any real growth from Imperial Brands. The dividend does not look to be under threat in either case but you would think it was judging by the share price. What would have happened had the increase in the dividend been a mere 5% say?

For an investor who has not held them before one would think this must be a decent buy but maybe the end is nearer than we thought.

Dod

[idpickering]

There's certainly another lesson here in "nothing is for ever". I am also down, about 14% - and that's over nine years of holding and occasionally adding.

So where is the worm in the apple, and will it be found before our apple collapses?

Once more, we cannot stress diversity enough - and do not fall in love with any particular share.


Arb.

Wise words indeed Arb, thank you. As of now I'm 16% under water with IMB. In capital value terms they weigh in as 3.7% of the 31 share HYP whole. They sit alongside British American Tobacco, and between them they weigh in at 6.5% of the HYP whole. I'm not going to stress about the IMB share price, and shall hold on, as any good HYPer should.

Ian.

[Arborbridge]

Arb is very right I am sorry to say. If we abandon tobacco the pool of HYP shares is getting to the stage when it will be calling in to question the whole HYP strategy. It is obvious that the whole tobacco sector is out of favour and the market is very nervous. First it was BAT and the US regulator and now discomfort over the lack of any real growth from Imperial Brands. The dividend does not look to be under threat in either case but you would think it was judging by the share price. What would have happened had the increase in the dividend been a mere 5% say?

For an investor who has not held them before one would think this must be a decent buy but maybe the end is nearer than we thought.

Dod

I think to write off the strategy maybe premature.
Admittedly, my HYP after nine years is only 25% higher in capital terms than at the beginning - not exactly magnificent - but it is still providing a high yield and an increasing income - that is, a higher income than I could have received from other methods. My conclusion is that with my HYP in general, we are just seeing "the higher the return, the higher the risk". I'm buying a higher income and sacrificing some capital appreciation.

I'm not wishing to start a debate! - that's just a passing observation about how I feel generally, and I am certainly not abandoning HYP principles.

Arb.

[Dod101]

I do not want to start a debate on the principles of the HYP strategy but I am genuinely puzzled about the tobaccos and logically had it been in another sector we, or at least I, would have written the shares out of my HYP by now. As it is I will just leave them there but will not be adding to them, however attractive the current yield is. There simply is no point in a 10% or so per annum yield when the share price drops more than 5% in a single day. I will take a look at the half year and see what I may or may not do.

Dod

[tjh290633]

What we do not know is why the market dropped the share price by so much today. There seems to be a pattern of a big increase in dividend leading to a large fall in share price. It happens frequently.

Do we take advantage of the market's pessimism, or should we be warned by it? The HYP selection process takes advantage of shares which are depressed, leading to higher yields. The alternative is a LYP, where you only buy the rampant shares, with consequent low yields. That method is not immune from price falls, either.

TJH

[Dod101]

The alternative is a LYP, where you only buy the rampant shares, with consequent low yields. That method is not immune from price falls, either.

Well Unilever rose by 0.78% today to £46.29. I know which share I prefer. A nice LYP is fine by me.

And seriously as I have been saying for a long while, do not chase yield.

Dod

[kempiejon]

Hmm, shares go up and down, this drives the yield in the opposite direction, our HYP looks for those shares the market has driven the price down and hence the yield up, this gives us our income. Is IMB dividend safe - well probably for now I think. Just in case I've got lots of other shares, some have and some had high yields those that had high yields have changed because their share prices went up or they changed their dividend amounts.

Your LYP idea doesn't wash for my income requirements.

[Darka]

I suspect today's fall is related to this:

https://www.telegraph.co.uk/business/20 ... -imperial/

"A slowdown in vape sales in the key US market spooked investors in cigarette maker Imperial Brands, despite surging profits. "

I'm not a subscriber, so can't read the rest of the article but I think the quote above summaries the problem well, I believe sales have picked up since then however.

[monabri]

Here's the last para from the same D.Telegraph link provided above by Darka.

"Ms Cooper added: “We’re a smaller incumbent than some of the others. Because we have smaller [market] shares, as smokers shift into vaping they are most likely not smokers of our brands, and even if they are, the profit equation is nice for us anyway.”"

The last part of the sentence made me cringe - shades of Sainsbury boss Mr Coupe and his infamous gaff.


The analysts reckoned that sales of their e cigs would have to double in the second half of the year to meet IMB's target of 4% growth.
The main competition being Altria's JUUL e-cig......and the FDA stepping up their concerns.

"Higher prices helped offset a 7pc slump in the numbers of cigarettes and other traditional forms of tobacco sold. "

[88V8]

It's funny that Mr Market, normally obsessed with the short-term, seems so keen to write off a business which must surely have a good few decades to go. Rather like writing off Big Oil because of electric cars.
People have been puffing hallucinogens a lot longer than IMB has been around, and they're not about to desist.

Even if IMB grew its divis by a more gentle 5% - which I would prefer - it would still be a stonking buy for those not already overweight.

And anyway, the share price has only retreated to its level of March 2018.
Panic later.

V8

[MDW1954]

It's funny that Mr Market, normally obsessed with the short-term, seems so keen to write off a business which must surely have a good few decades to go. Rather like writing off Big Oil because of electric cars.
People have been puffing hallucinogens a lot longer than IMB has been around, and they're not about to desist.

Even if IMB grew its divis by a more gentle 5% - which I would prefer - it would still be a stonking buy for those not already overweight.

And anyway, the share price has only retreated to its level of March 2018.
Panic later.

V8

I see this as similar to the fall in resource stocks in early 2016. In retrospect, that was a great time to buy RDSB and BHP etc, and I'm very glad I did.

Up to today, I was only a couple of percent or so underwater on IMB, so not spooked. When I topped up RDSB, BP etc in 2016, I was significantly underwater. It looked temporary, and it was temporary, and the bought yields were fantastic -- I was getting RDSB on 11-12%.

I shall be buying more IMB.

MDW1954

[monabri]

Surely there must have been similar conversations when RDSB shareprice fell (Jan 16, 1277p)...? I wasn't "around" then (on TMF) but I imagine that the view was that "oil is dead" and the SP would never recover?

( edit..I see MDW has brought up a similar comment).

[Dod101]

Hmm, shares go up and down, this drives the yield in the opposite direction, our HYP looks for those shares the market has driven the price down and hence the yield up, this gives us our income.

The actual dividend gives you your income, not the yield and that is doing fine, but the other side of the equation is the capital value or the share price. Tobacco does not seem to me to be like oil or mining shares, which are cyclical by nature. Tobacco should be the very opposite. That is the point, they should be very 'steady as she goes' shares, and yet?

What has happened? The world has realised that they are a dying industry. They are still throwing off cash but how long can this go on? As I have said ad nauseum, there is no point in having a 10% dividend increase if the capital is being eroded even faster. That way is penury.

OTOH if a 10% yield is sustainable, and there seems no reason why it should not be, then Mr Market will soon be along to bring it back to a sensible level like say 6% which implies an uplift of pretty much 50% in the share price. Glory Glory Hallelujah!

Dod

[Arborbridge]

Surely there must have been similar conversations when RDSB shareprice fell (Jan 16, 1277p)...? I wasn't "around" then (on TMF) but I imagine that the view was that "oil is dead" and the SP would never recover?

( edit..I see MDW has brought up a similar comment).

No, I don't think there was much talk of that sort. It was more like "never sell Shell" - although some people thought oil would become a sort zombie investment, but not in our lifetimes. ("Our" meaning elderly gentleman living on their HYP income).

Arb.

[IanTHughes]

The alternative is a LYP, where you only buy the rampant shares, with consequent low yields. That method is not immune from price falls, either.

Well Unilever rose by 0.78% today to £46.29. I know which share I prefer. A nice LYP is fine by me.

And seriously as I have been saying for a long while, do not chase yield.

So presumably you would have approved of a purchase of Imperial Brands (IMB) in April 2017 when the yield was more manageable 4%, leading to a 44% loss of capital value to-date?

Seriously, IMB share price has been dropping since late 2016 as a result of market concerns that I believe broadly fall into three areas, especially in the US market:

1) decreased sales of old-style cigarette
2) slow take-up of IMB vape products to replace the lost cigarette sales
3) increasing regulatory interest in control of all nicotine products

With regard to the regulatory concerns, as well as possible "anti-vaping" regulations similar to or even the same as those already in place for "anti-smoking", there has also been some discussion about increasing from 18 to 21, the "age of consent" for nicotine. This would be in response to what is seen as an epidemic of "new" teenage customers, non-smokers but attracted to vaping, which is seen as less harmful. Such a tightening of regulations would certainly hit the teenage market quite hard.

Yesterday, the somewhat disappointing results for IMB's vaping products certainly spooked the market into believing that the switch from "smoking" to "vaping", something heavily invested in by all cigarette producers including IMB, will not be as smooth as perhaps had been previously planned.

I hold IMB and tomorrow I will be topping-up my holding, using my broker's monthly regular cheap investing process. I am therefore somewhat pleased about the drop in share price yesterday.


Ian

[TUK020]

People have been puffing hallucinogens a lot longer than IMB has been around, and they're not about to desist.

Carcinogens are IMB's current business model. Hallucinogens represent a huge new growth opportunity

[idpickering]

("Our" meaning elderly gentleman living on their HYP income).

Arb.

As they, and we, should, and stop fretting about share price movements. Although it is hard I know.

Ian.

[idpickering]

I hold IMB and tomorrow I will be topping-up my holding, using my broker's monthly regular cheap investing process. I am therefore somewhat pleased about the drop in share price yesterday.


Ian

I know I said yesterday that I wasn't going to buy any more IMB, but it's so tempting. Much like I took advantage of the drop of RDSB in 2016 by doubling up. I certainly wouldn't double up on IMB though, but a small top up might be in order perhaps?

Ian.

[IanTHughes]

I hold IMB and tomorrow I will be topping-up my holding, using my broker's monthly regular cheap investing process. I am therefore somewhat pleased about the drop in share price yesterday.

I know I said yesterday that I wasn't going to buy any more IMB, but it's so tempting. Much like I took advantage of the drop of RDSB in 2016 by doubling up. I certainly wouldn't double up on IMB though, but a small top up might be in order perhaps?

Just to be clear, I had already decided to top up IMB and nothing about yesterday's half-year results put me off. Increased profits, increased interim dividend, proposed increased full year dividend of 10%, what's not to like? And of course, if the price is still reduced tomorrow, it will simply allow more shares to be bought.

Luvverly Jubbly


Ian

[Arborbridge]

("Our" meaning elderly gentleman living on their HYP income).

Arb.

As they, and we, should, and stop fretting about share price movements. Although it is hard I know.

Ian.

Hard, as you say. Even Dod - who has been a firm support of shares such as BATs - has had his doubts in recent posts with his observation that a falling price just wipes out the benefit of the dividend.
A man from Mars might look at this share whose price has halved in three years and think "By 'eck, there's trouble there".

Still, provided there's life in the old dog end yet, it is a bargain. Personally, I'm in no hurry as even after this fall my holding is still bigger than my median - but a top up might be on the cards later on.

Times like this certainly test one.

Arb.