Profit surge lifts Imperial Tobacco stock

City A.M. Reporter
SHARES in Imperial Tobacco rose 3.1 per cent yesterday, after the world’s fourth-biggest cigarette maker beat forecasts with first-half earnings growth, and announced a £500m share buyback.

The Bristol-based company posted adjusted earnings for the half-year to the end of March of 88.4p a share, beating consensus expectations of 87.8p. The half-year dividend is up 16 per cent to 28.1p a share.

The British group, with cigarette brands including Lambert & Butler, Fortuna and Gauloises, said the buyback was effective immediately, while after this year the company said it would look to grow dividends ahead of earnings.

The group said Spain remains difficult but it had made gains elsewhere in the EU and in the rest of the world and is focused on producing a strong result for the second-half.

Imperial, which makes over 300bn cigarettes a year, said its volumes fell 0.7 per cent in the half year to the end of March but price rises pushed revenues up one per cent.

“Spain remains difficult but we made gains elsewhere in the EU and our growth in emerging markets outside the EU was excellent,” said chief executive Alison Cooper.

Imperial shares, after a period of underperformance, have picked up since late March rising from £18.61 to current levels, but they still trade on a discount of 11.1 times earnings for the current year compared to rival British American Tobacco which trades on 14 times earnings.

“Investors will want to see evidence of less bad trading in the EU before being willing to pay a substantially higher multiple,” said analyst Adam Spielman from Citi.