Imperial Brands LON:IMB shares pulled back 1.75% Thursday, taking a breather after a nearly 12% rally in the last month. The company’s impressive 42% year-to-date increase in value merits a closer look.
The latest leg of the rally came after the company reported an increase in dividend and then posted positive results in November. While technical data paints a very positive picture, particularly in the short term, some analysts caution that outside of reported numbers Imperial Brands has some inherent weaknesses when compared with peers.
The maker of Blu electronic cigarettes, Davidoff, Winston and Rizla is finding it hard to stand out in the Next Generation Products (NGP) market such as heated tobacco, vapes and tobacco-free oral pouches. Unlike Philip Morris International NYSE:PM, which dominates the premium segment, Imperial Brands has boxed itself into a smaller, price-driven market aimed at value-conscious consumers. This reliance on outdated tobacco strategies and price competition could limit its ability to grow and compete effectively.
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The biggest regulatory challenges for Next-Generation Products, or NGPs, are increasing taxes and flavour restrictions. Governments are raising taxes on NGPs to recover lost excise revenues as consumers shift from traditional cigarettes. Flavour bans, limiting options to tobacco flavours, aim to prevent underage use and reinforce NGPs as cigarette substitutes.
“In addition to that Imperial Brands’ reliance on Chinese manufacturers for NGPs reflects its lack of R&D capabilities and urgency to launch products quickly. This shortcut approach leaves Imperial at a disadvantage compared to PMI and BAT [LON: BATS] which have invested heavily in building R&D and securing competitive advantages,” said Orwa Mohamad, an analyst with independent research house Third Bridge.
Experts are also sceptical about Imperial Brands’ ability to gain significant market share in nicotine pouches, a product that is similar to chewing gum and is becoming increasingly popular. They predict the company will only achieve a small, single-digit market share in countries where it already has some strength, like the US, UK, Spain, and Germany.
Positive Q3 results pave way for further growth
Despite the negatives, AI stock analysis service Bridgewise argues that Imperial Brands is outperforming peers based on its latest set of results. In Q3 the company recorded a strong Return on Equity Ratio and EBITDA, the two metrics that have historically had a positive correlation to consumer goods companies outperforming industry competitors.
Imperial Brands’ revenues increased 3.2% to £4.93 billion in the latest quarter while net income reached £883.5 million, a 51.7% annual increase in EPS. The EBITDA margin improved from to 23.3% from 20.7% y-o-y and free cash flow increased by £105m to £1.57bn making it possible for the company to payout £400 to shareholders in form of dividend and buybacks. The dividend yield for this stock is 6.2%.
Charts provide strong positive signal
Charts and technical indicators of Imperial Brands’ share performance are all looking very favourable. According to Trend Intelligence the price action is operating above the medium length moving average and trend momentum indicators are producing positive signals.
Both the most recent green candle and the white shorter length moving average are trading above the trend’s yellow medium length moving average. The most recent green candle trades above the blue Japanese cloud. The green +D* area exceeds the red –D* line and the R* area and the yellow signal line are both positive while the red M* line is above the yellow and blue signal lines.
Consequently, Trend Intelligence rates the company a 100% buy/positive with no immediate negative factors, expecting the share to maintain a strong positive trend in the short term.
