Imperial Brands: Offers Value, But The Air Is Getting Thinner

2025-03-09 16:22:51 ET

Summary

• Imperial Brands has delivered a 25% total since my last coverage six months ago, exceeding expectations, with shares up over 130% since 2020.
• Despite rising share prices and expanded multiples, Imperial Brands remains attractive due to its strong cash generation and ongoing share buybacks and dividends.
• However, current valuation at 9.27x earnings and a 5.8% dividend yield is less compelling compared to past years and peers like British American Tobacco.
• Imperial Brands leads in shareholder yield but lags behind British American Tobacco in free cash flow yield and New Generation Products.
• Given the buybacks Imperial Brands should grow at 6-7% a year, therefore the current FCF yield of 10.45% still looks attractive compared to other sectors, and I keep rating the shares a buy.

In October of last year, I wrote one of my first articles here on Seeking Alpha, focusing on Imperial Brands . In that analysis, I concluded that share buybacks should accelerate EPS growth to 6-7%. With ongoing buybacks and generous dividends, I expected that the company should be a profitable investment, at least for the medium term.

Since then, the total return of Imperial Brands has been around 25% in less than six months, far exceeding my expectations....

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