Imperial Brands (IMB) announced its full-year results for fiscal year 2024 on 19 November 2024, reporting a 4.5% increase in its annual dividend to 153.42p per share. This follows a year where the company met its targets, particularly in the latter half, showcasing consistent performance. The results reflect the company's ongoing strategic initiatives and provide a positive outlook for shareholders.
Morningstar's analysis provides a valuable context for understanding Imperial Brands' performance. The company currently holds a three-star Morningstar Rating, a wide economic moat rating, and a medium uncertainty rating. Morningstar's fair value estimate for Imperial Brands stock has been revised upwards to £27, reflecting improved projections for top-line growth and profit margins. This upgrade is primarily attributed to stronger-than-anticipated sales growth and increased profit margins.
For fiscal year 2025, Imperial Brands anticipates single-digit net revenue growth and mid-single-digit adjusted operating growth, both calculated on a constant-currency basis. This projection signals continued confidence in the company's operational efficiency and market positioning. The announcement builds on the successful completion of the company's current five-year plan, which focused on maximising free cash flow generation and returning capital to shareholders.
A significant aspect of the company's shareholder return strategy is a planned £1.25 billion buyback for fiscal year 2025. This, combined with previous capital returns, will bring the total shareholder return to approximately £10 billion, representing roughly two-thirds of the company's market capitalisation five years ago. Based on current projections, analysts forecast a potential return of nearly £15 billion over the next five years, underscoring the company's commitment to rewarding its investors.
Further positive indicators emerged in the report. Tobacco volume declines have moderated, and projections suggest a decrease towards mid-single-digit rates, aligning more closely with historical averages. While next-generation products currently represent a small portion of the business, Imperial Brands is approaching breakeven, a development expected to enhance profit margins. The company has also demonstrated success in maintaining market share across its five priority markets, while successfully implementing price increases that have significantly boosted the bottom line.
In its updated forecast, Morningstar projects five-year sales growth of 0.4% and mid-cycle adjusted operating margins of 44.6%, revising previous estimates of -0.3% and 43.3% respectively. This improved outlook underscores the company's resilience and strategic effectiveness.
Despite the positive outlook for Imperial Brands, Morningstar analysts suggest the company's shares are currently fairly valued. Investors seeking exposure to the tobacco sector may find more attractive upside potential in British American Tobacco, which Morningstar believes the market underestimates regarding its next-generation product portfolio. The analysis concludes that the market undervalues British American Tobacco's next-generation products in comparison to Philip Morris. The authors of this report do not hold shares in any of the companies mentioned.