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Imperial Tobacco cautions on Syria and Iraq but positive about overall outlook

Discussion in 'Market News' started by Lily, Nov 4, 2015.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
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    Cigarette group reports rise in profits as integration of US brands goes well

    Imperial Tobacco - recently tipped as a takeover target for rivals BAT or Japan Tobacco - has cautioned that the current conflicts in Syria and Iraq will hold back its progress this year.

    Reporting a 2.4% rise in full year operating profits to £3.05bn, the company said it expected to build on its acquisition of a number of US brands sold after the merger of Reynolds American and Lorillard.

    Looking to the year ahead we expect first quarter volumes will continue to reflect the situation in Iraq and Syria as well as a strong comparator quarter for volumes last year, while first half revenue should benefit from stronger relative pricing.

    Overall we are well placed to meet expectations for the coming year.

    The full year results on balance look good to us; a ‘beat’ on both earnings per share and net debt, strong pricing, US integration going well and good progress on growth brands. On the negative side organic volumes are weaker; down 10% in the fourth quarter over half of which was Iraq/Syria.

    With another year of double digit earnings per share and dividend growth in prospect and the latter well covered by free cash flow, Imperial’s 15 times PE continues to look very attractive within the staples space.

    While the fourth quarter performance was robust overall, looking ahead we remain concerned about the impact of the introduction of plain packaging in the UK and Ireland in mid-2016 (and its possible adoption in other EU markets in the longer term), and the likely increased competitive threat from larger players Altria and Reynolds American in the US as the pricing standstill agreement expires in mid-November 2015.

    The boost from brand migrations more broadly will now slow, albeit this will not be a surprise.

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