Imperial
Tobacco: Tobacco
stocks are called many nasty things, with politicians queueing up to tax and chastise
them, but they do throw off oodles of cash. Volumes were down 7% and revenues
were down 6% in the year to 30th September, but the never ending
cost cutting helped push operating profits up 5%. The current plan is to
squeeze out £300m per annum of total savings by fiscal year 2018, which is
about 10% of current operating profits. So far they are up to £60m p.a. As an
aside, their volumes were still 294bn sticks last year, or just over 40 per
man, woman, child and baby on this planet. And that is just from the world’s fourth
largest producer, although a $7.1bn deal is in train to buy several brands from
Reynolds America and Lorillard, with completion due in Spring 2015. At that
stage they will own Blu, giving them a better position in the e-cigarette
market.
Anyway, earnings per share were down 3% at 203.4p, in line with
consensus, but at constant exchange rates were up 2%. With healthy cash
conversion at 91% and net debt down 11% to £8.1bn, the dividend was increased
to 128.1p. The company will take on more debt with the US acquisitions next
year, but all the same they have announced a plan to move to quarterly dividend
payments, with a commitment to increase the 2014/15 dividend by at least 10%.
After a good reaction to these results the shares are around 2820p, so the
historic PE is 13.9x and the prospective yield is 5.0%. It sticks in the
throat, but for income growth investors Imperial Tobacco is a solid portfolio
candidate. The day will come when repeating the revenue down and dividend up
routine will fail, but Chief Executive, Alison Cooper, is clearly determined
that it won’t be on her watch. (Neil Cumming, 5th
November 2014)
These comments are not a personal recommendation to deal. Any
investments can fall as well as rise in value, so you could get back less than
you invest. I may have a financial interest in some of the stocks written
about.
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