Imperial Brands has launched a £1bn share buyback programme to reward shareholders after a year in which investors seeking refuge in Big Tobacco helped the UK-based cigarette maker rank among the FTSE 100’s best-performing stocks.
Imperial, behind brands from Gauloises to Davidoff, said on Thursday that trading had been in line with expectations in the year to the end of September, adding that it had benefited from a weakening pound and buoyant duty free sales as international travel returned.
The UK-based tobacco group announced it would repurchase £1bn in shares — about 5.5 per cent of the group’s equity — over the next 12 months. Combined with its ordinary dividend, it is set to return £2.3bn of capital to shareholders over the next year.
Imperial’s shares were up 4.2 per cent at £19.76 in early morning trading.
Chief executive Stefan Bomhard said the buyback programme marked an “important milestone” in the management’s five-year strategy, in which the company has cut its net debt to ebitda (earnings before interest, tax, depreciation and amortisation) ratio to 2-2.5 times and vowed to return surplus capital to shareholders.
The company is also increasing investment in its five major markets and in next generation products, including vape and tobacco-heating products, as part of its turnround plan.
Bomhard said the buyback scheme was “underpinned” by the company’s “improving performance” and its “confidence in being able to continue generating strong cash flows to support growing shareholder returns in the years to come”.
Imperial, which is also behind brands such as blu and Rizla, has been among a minority of FTSE 100 companies to produce positive shareholder returns so far this year, and ranks among the 10 best-performing stocks on the blue-chip index.
Rae Maile, an analyst at Panmure Gordon, said funds had previously pivoted away from Big Tobacco as part of an ESG drive but the economic turmoil in the fallout from Russia’s invasion of Ukraine had tempted them back.
Unlike much of the FTSE, “these shares were at seven times earnings, were delivering their profit numbers, and because they are massive overseas earners ended up with currency upgrades too, so the whole ESG angle became a little bit trickier to justify,” said Maile.
James Edwardes Jones, analyst at RBC Capital Markets, said tobacco’s “addictive nature” meant it also proved “very resilient in times of economic downturn, which many investors are positioning themselves for”.
The launch of Imperial’s share repurchase programme makes it the latest in a rush of London and New York-listed companies to turn to share buybacks. Rival British American Tobacco launched a £2bn, year-long scheme in February, while US-based Philip Morris International announced a three-year share repurchase programme of up to $7bn last year.
“The tobacco industry has more cash flow than it can possibly reinvest in its business and there’s no point just constantly paying down debt,” said Maile. “They’ve paid down debt to a level where the credit rating agencies now seem happy and therefore they can start returning their excess cash flow to shareholders, which is the right and proper thing to do.”