Imperial Brands cuts dividend by a third

Tobacco has been largely unaffected by the pandemic, but total revenues and operating profits have still fallen

Article updated: 20 May 2020 9:00am Author: Helal Miah

  • Sales and profitability numbers were below expectations and Management expect the effect of the global pandemic to hit in the second half of 2020
  • Drop in revenues and profits can be attributed to slower take up in e-cigarette market, leading to asset write downs
  • Shares fall by over 8% in early trading
  • Recommendation: With disappointing results in its Next Generation Product (NGP) line and longer term structural trends, we maintain our cautious ‘Hold’ recommendation

Although longer term structural decline in smoking rates isn’t going away, the traditional defensive nature of the tobacco industry has seen companies in this sector less affected by the global pandemic. That’s judging by the sector’s share price performance and Imperial Brand’s first half performance. Tobacco volumes fell by half a percent, whereas the market had priced in a slightly bigger fall. However, total revenues fell by 1.7% to £3.6bn and operating profits slid by 9% to £1.47bn. Some of this slowdown can be put down to the Next Generation Products (NGPs), or the e-cigarette market, where the take-up hasn’t been as great as anticipated, leading to asset writedowns.

Sales and profitability numbers were below expectations and management expect the effect of the global pandemic to hit in the second half. Given this anticipation, management have decided to rebase the dividend, dropping it by a third and implying an annual dividend of 137.7p. This is so they can better allocate resources with the aim of reducing the gearing to the target range of 2-2-25x by the end of 2022.

Despite the tougher times faced by the industry in recent years, the likes of Imperial were still seen as dependable dividend payers, and this morning’s rebasing of the dividend is a blow. Along with the poor performance of NGPs, this has seen shares fall over 8%. NGPs were a big hope for the future of the group, but this disappointment along with the longer-term structural trend leads us to remain with our cautious Hold rating.

All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to To understand how our Investment research team arrive at their views please read our Investment Research Policy.

Helal Miah portrait photo
Helal Miah

Investment Research Analyst

After graduating with an economics degree from University College London, Helal started his career within private banking at Smith & Williamson Investment Management and later held analyst and fund manager roles with the Industrial Bank of Japan, Schroders and Mitsubishi Corporation. He is a chartered fellow of the Chartered Institute for Securities & Investment. 

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