Next generation products are a big focus going forward, despite regulatory uncertainty
Imperial Brands remain steady despite regulatory uncertainty
- Impressive dividends stemming from strong cash conversion help maintain our ‘buy’ recommendation.
- Revenue growth still expected at the top end of its guidance despite US regulation uncertainty.
- New focus on next generation products display potential for the company and provides scope for optimism amongst investors.
Imperial Brands this morning confirmed that the group remain on track to meet revenue and earnings expectations for the year. The recent focus has moved to next generation products such as myblu, and despite US authorities creating some uncertainty with possible bans, the group is seeing good revenue growth in this area. The hope for the sector is that these new products will help offset pressure that tobacco is under, which has been demonstrated by a slight fall in first half demand. Overall revenue growth is expected to be at the top end of its guidance.
Although the shares have been struggling to recover from the sharp falls experienced over 2017 and to a lesser extent last year, investors have often cast aside ethical concerns and concentrated on the good cash conversion, which has led to a long record of dividend increases, with a current yield of around 7.3%.
Our View on Imperial Brands - Buy
We are maintaining our ‘buy' recommendation for medium risk income-seeking investors due to the next generation of products potential and the excellent track record of dividend growth. However, tobacco volumes are falling steadily and the FDA's more aggressive approach to tobacco regulation may act as a drag on share price growth.
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