Imperial Brands Prelims

[idpickering]

“2019 has been a challenging year with results below our expectations due to tough trading in Next Generation
Products (NGP). We are implementing actions to drive a stronger performance in the coming year.
“Our resilient tobacco value creation model continues to produce high margin sales growth and is well-placed to
deliver sustained profitable growth in the years ahead.
“Although we grew NGP revenues by around 50 per cent, this was below the level we expected to deliver. Our delivery
was also impacted by an increasingly competitive environment and regulatory uncertainty in the USA. Growth in
Europe was also slower, despite achieving leading retail shares in several markets. We have taken the learnings from
this year to reset our NGP investment plans for 2020, prioritising the markets and categories with the highest
potential for sustainable, profitable growth. We will scale up investment as the visibility on returns and regulatory
uncertainties improves.
“Our priority going forward is to optimise the profit and cash generation from our tobacco assets, while improving
growth in NGP with greater discipline and a more tightly focused business model that will create long-term value for
shareholders.”
Alison Cooper
Chief Executive

later; • Annual dividend of 206.58p up +10%; revised capital allocation and shareholder distribution policy in place

And; Dividend Growth
The Group has paid two interim dividends totalling 62.56 pence per share in June 2019 and September 2019, in line with our quarterly dividend payment policy to give shareholders a more regular cash return.
The Board approved a further interim dividend of 72.00 pence per share and will propose a final dividend of 72.01 pence per share, bringing the total dividend for the year to 206.57 pence per share. The third interim dividend will be paid on 31 December 2019 with an ex-dividend date of 22 November 2019. Subject to AGM approval, the proposed final dividend will be paid on 31 March 2020, with an ex-dividend date of 21 February 2020.

https://www.imperialbrandsplc.com/conte ... dasset.pdf

[Dod101]

Thanks Ian. I have gone through the results on the Imp's website and I must say I see nothing unexpected. The tobacco results are good; they are having the same problems as others with NGP, and their dividend policy is as outlined in their trading statement made earlier. 10% increase in this year's final and 'progressive' thereafter. On that basis, the current yield is crazy, surely.

Very glad to keep what I have in them.

Dod

[idpickering]

Thanks Ian. I have gone through the results on the Imp's website and I must say I see nothing unexpected. The tobacco results are good; they are having the same problems as others with NGP, and their dividend policy is as outlined in their trading statement made earlier. 10% increase in this year's final and 'progressive' thereafter.

Very glad to keep what I have in them.

Dod

You're welcome Dod. I'm glad I stuck with them despite my slight wobble the other day. I don't intend throwing more money at them though, and am happy to continue to hold. They make up just over 3% in capital value terms of my 29 share HYP, and sit alongside BATS, also similarly weighted. To be honest, I'm a bit relieved at these results, and the dividend policy.

Ian.

[Darka]

Thanks Ian,

I'm still happy to hold, I did a small top up recently.

I know that tweaking a portfolio due to market sentiment is exactly what you shouldn't do and have decided to trust more in my portfolio and not to second guess every company.

All companies fall out of favor, some come back and some don't but it's the portfolio and diversification that matters.

[idpickering]

Thanks Ian,

I'm still happy to hold, I did a small top up recently.

I know that tweaking a portfolio due to market sentiment is exactly what you shouldn't do and have decided to trust more in my portfolio and not to second guess every company.

All companies fall out of favor, some come back and some don't but it's the portfolio and diversification that matters.

You’re welcome Darka. I did top these up this January, and have spent enough there already I think. I have topped up their sibling BATS three times this year, and might dip my toes there one more time maybe. I commend you on your sound reasoned comments.

Ian.

[Dod101]

And yet, the market has marked them down a bit. That seems perverse. Sure the profit is down a bit but that is down to the NGP side and they say they are taking action there. Am I missing something? (Thinking aloud but I hope someone might tell me what I am missing)

Dod

[Arborbridge]

Thanks Ian,

I'm still happy to hold, I did a small top up recently.

I know that tweaking a portfolio due to market sentiment is exactly what you shouldn't do and have decided to trust more in my portfolio and not to second guess every company.

All companies fall out of favor, some come back and some don't but it's the portfolio and diversification that matters.

You’re welcome Darka. I did top these up this January, and have spent enough there already I think. I have topped up their sibling BATS three times this year, and might dip my toes there one more time maybe. I commend you on your sound reasoned comments.

Ian.

I'm not in a position to topup even thought they are at the top of the table. For one thing, they account for nearly 5% of my income and 4% of capital, so a bit "toppy" on both accounts, so that would suggest BATs in second place would be the chosen one. However, it's all academic until my Greene King buy out cash arrives - and that begs a whole range of questions about what to do with a unit's worth of capital.

Arb.

[Gostevie]

The Board approved a further interim dividend of 72.00 pence per share and will propose a final dividend of 72.01 pence per share, bringing the total dividend for the year to 206.57 pence per share. The third interim dividend will be paid on 31 December 2019 with an ex-dividend date of 22 November 2019. Subject to AGM approval, the proposed final dividend will be paid on 31 March 2020, with an ex-dividend date of 21 February 2020.

https://www.imperialbrandsplc.com/conte ... dasset.pdf

Those stated ex-dividend dates are Fridays. I am assuming this is an error, and that those are the record dates with the ex-dividend dates being the preceding Thursdays. Apologies if I am incorrect.

Gostevie

[IanTHughes]

The Board approved a further interim dividend of 72.00 pence per share and will propose a final dividend of 72.01 pence per share, bringing the total dividend for the year to 206.57 pence per share. The third interim dividend will be paid on 31 December 2019 with an ex-dividend date of 22 November 2019. Subject to AGM approval, the proposed final dividend will be paid on 31 March 2020, with an ex-dividend date of 21 February 2020.

https://www.imperialbrandsplc.com/conte ... dasset.pdf

Those stated ex-dividend dates are Fridays. I am assuming this is an error, and that those are the record dates with the ex-dividend dates being the preceding Thursdays. Apologies if I am incorrect.

No, I think you are correct. Interestingly, on the company website, the Financial Calendar which lists Upcoming Events shows the 21 Nov 2019 as the Ex-Dividend Date for the 3rd interim. Someone has boobed!

https://www.imperialbrandsplc.com/inves ... #category1

Ian

[monabri]

Interestingly, dividenddata has the XD down as 21/11/19.

https://www.dividenddata.co.uk/dividend ... y?epic=IMB

[Dod101]

Two comments

The ex div date whether on one day or another, does it really matter?

I was tempted to buy and certainly would be now except that I hold enough anyway. It seems to be one of those rare occasions when the market has got it wrong, at least in terms of any specific problem. Obviously tobacco in general is a shrinking market but given the price of Imperial at the moment, it must surely be a steal. Surely it is the classic HYP share, but currently also on value grounds.

Dod

[kempiejon]

If you didn't already hold IMB, would you be tempted? (although probably more from a Value perspective rather than HYP...)

I do hold, split with British American Tobacco, I'll not add and if I had to cast around for a negative for IMBs I've seen a value for dividend cover of less than one, that would put me off, the same source (AJ Bell) has BATS over 1. If you're a HYPer and don't have a tobacco share the sector adds diversification, high yield, a history of increasing dividends in fact I see about 20 years of mostly double digit % dividend increase for both tobacco Cos, and they are large caps in the 100 index. I'd want to investigate debt too and I think BATS would win me over there too.

[Dod101]

Having read my last post again, it is simply one man's opinion. It could be proved wrong but although the dividends are not going to be increased by 10% in the future, there seems little risk of a cut. Nor have they written down the value of their investments in NGPs, unlike say Altria.

kempiejohn has produced a list of negatives for Imperial but none that are not known and I think Imps are addressing them.

DYOR.

Dod

[JoyofBricks8]

I am well underwater on these: the question is do I feel like a rabbit- (sit tight), an assassin -(cut losses) or a hunter - (add to the losing position as it is better value)?

I learned from Leon Boros superb recent Mello presentation that great investors are likely to be assassins: cutting losers and running winners.

Unfortunately I have been a rabbit so long with IMB that it is a permanent habit.

[AndyPandy]

If you didn't already hold IMB, would you be tempted? (although probably more from a Value perspective rather than HYP...)

TL;DR - yes.

Tobaccos have always been absent from my Portfolio from a principle point of view (despite, from time to time, holding Defence, pubs and bookmakers ).

Swallowed my principles today and bought my first ever tranche. It just seems to good to not dip a toe in. The world is not going to suddenly stop smoking. It's proved remarkably resilient to all advertising restrictions and taxes thrown at it by various Governments here (although I presume that elsewhere in the world they can still brand packets).

If any of the issues with vaping materialise to solid fact, there could even be a swing back to tobacco.

"...more from a Value perspective rather than HYP" - why not both at the moment (although that's fitting my HYP screen, not others', so let's not go there)?

[idpickering]

It wouldn’t surprise me if BATS gobbles IMB up to be honest. In fact I’m even more surprised that they haven’t already.

Ian.

[SalvorHardin]

I’ve had a look this morning at Imperial Brands as a speculative punt, but decided against it.

When I come across a company with such a huge yield compared to the market, the first thing I recommend is to have a look at its traded debt; preferably its longest dated quoted bonds. Imperial 4.875% 2032 bonds currently trade at £119.15 per £100, which corresponds to a redemption yield of roughly 3.05%. So the market isn’t signalling that solvency is a concern.

For me the big negative in the accounts is the massive discrepancy between statutory earnings per share (106.0p) and adjusted earnings per share (273.3p). The company has done what lots of companies do to generate an adjusted eps; ignore certain items which are either one-offs or are unrepresentative. This produces the “underlying” earnings, what the business earns once the one-offs are removed.

Note 8 of the accounts in today’s RNS (link below) details the difference between the earnings per share, much of which comes from amortisation and restructuring charges. For some companies it is debatable whether amortisation charges (depreciation of intangibles) should apply due to the strength of their intangible assets (e.g. The Coca-Cola brand). I’d argue that tobacco is most definitely not in this category due to changing consumer habits and the political and social climate.

https://www.investegate.co.uk/imperial- ... 01122771S/

The restructuring charges seem to occur every year. I’d argue that these are operational costs. Those of us who’ve read Terry Smith’s “Accounting For Growth” might remember Rank Hovis Macdougall’s extraordinary closure costs had occurred in each of the past eight years, averaging at 22% of reported profits (see page 54 of the Second Edition). Some of the pharmaceutical companies have been doing something very similar with their “core earnings” which disregard what looks to me like recurring costs.

Imperial Brands’ adjusted earnings price earnings ratio is just 6.3 but if we use the statutory earnings the P/E ratio jumps to 16.4, whilst the dividend is only 51% covered by statutory earnings per share.

IMHO this isn’t quite the bargain that it appears to be at first glance.

[Dod101]

Interestingly, dividenddata has the XD down as 21/11/19.

https://www.dividenddata.co.uk/dividend ... y?epic=IMB

Using the same calculation the yield from now to 31 March is 144/1738 = 8.3%.

Dod

[idpickering]

It wouldn’t surprise me if BATS gobbles IMB up to be honest. In fact I’m even more surprised that they haven’t already.

Ian.

I think I mentioned sector consolidation previously on this thread. It just has to happen imho. I mean they practically operate as one anyway (certainly going by the infamous 'Operation Berkshire' and the movie 'The Insider')

https://en.wikipedia.org/wiki/Operation_Berkshire

https://en.wikipedia.org/wiki/The_Insider_(film)

Agreed. Thanks for that Snorvey. Funnily enough, I've just been planning my near time future top ups, and BATS are looking fave for this month for me. That'd be them up to my maximum spend limit should I pull the trigger on that top up. I'm sticking on IMB going forward, and have no desire to buy more of them.

Ian.

[OLTB]

Afternoon all

I have nothing of great value to add apart from my personal thoughts for IMB and how it relates to my HYP.

I have committed much capital on IMB in the past and this alone will prevent me from using accumulated dividends to top them up (my own personal restrictions). I am 48% down in capital value.

Dividend wise, I have no complaints at all and wish that more of my holdings were like this!

In summary, no action from me.

Cheers, OLTB.