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Imperial Brands shares burned over vaping warning

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Full-year earnings are likely to be flat, the tobacco company said, having previously guided to around 4% growth

Imperial Brands PLC (LON:IMB) shares were stubbed out on Thursday morning after the nicotine delivery facilitator issued a profit warning in the wake of US scares over vaping.

In a pre-close trading update, the Lambert & Butler and Gauloises maker, said full-year earnings are likely to be flat, having previously guided to around 4% growth.

This is because net revenue is now expected to grow around 2%, having most recently pencilled in the upper-end of the 1-4% range.

The warning stemmed from the group’s push for market share gains in Australia and a deteriorating market for vaping in the US, which is dampening down demand for all e-cigarettes, including Imperial’s myblu.

Imperial’s warning comes a day after US tobacco giants Philip Morris and Altria called off their merger because of worries about vaping regulation killing the sector.

In Australia, representing around a tenth of group profits, despite the market being “highly competitive”, Imperial has made an aggressive push for more volumes, which has come at the expense of profits from this division.

Nicholas Hyett, an analyst at Hargreaves Lansdown, pointed to recent deaths in the US linked to vaping products.

“Vaping’s only a small contributor to revenues and profits at the moment, which is why full-year earnings per share look set to come in flat year-on-year, but hopes had been high that the vaping segment would drive growth as traditional tobacco declines.

“Increased regulatory scrutiny and retailers reluctant to stock vaping products is seriously undermining that hope. For now sales in Europe and Japan seem to have escaped too much of a knock-on effect, with regulators in the UK looking to reassure vapers about the health benefits of switching from traditional tobacco to e-cigarettes.

“However, having only recently increased investment behind it’s US vaping proposition this is less than ideal for Imperial.”

Source - Proactive Investor

About the author

Philip Scott

Head of Equities, Director

Philip has worked as a Private Client Stockbroker for nearly 20 years, commencing his career in Operations with Rensburg Sheppards (now part of Investec plc) before spending 9 years with Killik & Co advising on and directly managing portfolios. He joined SI Capital in 2006 to head up the Private Client Advisory desk.

Philip is a regular contributor to local media commenting on stock market dynamics and is a Chartered Member of the Chartered Institute for Securities & Investment (MCSI). His RDR qualification gained special recognitionfrom the CISI for achieving the highest combined pass mark in the country for the Investment Advice Diploma in 2012.

“At SI Capital I enjoy being part of a talented team who collectively share the same desire to provide excellence in service.  My focus is to ensure that each client receives effective and optimal management of their assets.”

Philip lives locally, is married with 2 daughters and is an avid sports fan (if now predominantly from the sidelines).  His other interests include music and film.

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