Two Tobacco Stocks Under Spotlight: British American Tobacco Plc and Imperial Brands Plc

The two tobacco giants seem to have been affected by discouragement of vaping. Vaping is inhaling vapour (nicotine from tobacco) instead of smoke. The world moved from traditional cigarettes to e-cigarettes and related products, which now have come under scrutiny from the regulators. We discuss below the recent news and performance highlights of two giants of the industry.

British American Tobacco Plc

United Kingdom-headquartered multinational tobacco and next-generation products company, British American Tobacco PLC (BATS) operates in four geographical segments namely, the United States (US), Europe and North Africa (ENA), Americas and Sub-Saharan Africa (AMSSA) and Asia-Pacific and Middle East (APME).

BATS-Recent News

On 12th September 2019, the company announced a vital programme meant to simplify its business and create a more agile, efficient, and focused BATS. This will lead to the group being better placed to meet ever-evolving customer needs. The company said the planned shake-up, which includes reduction in layers of management, would provide savings that can be reinvested to increase its portfolio of new-found categories such as tobacco heating products, vaping, and oral tobacco. The planned programme is expected to be completed by January 2020.

BATS-Key Growth Areas

Faster decision making; the elimination of duplicative activities; and greater management accountability. The plan will decrease management layers; better leverage its international business services activities and simplify all major business processes and “ways of working”.

BATS-Financial highlights for 1H FY19

The company’s revenue climbed by 4.6 % year over year to £12,170 million in first half of fiscal year 2019. The company’s revenue from the strategic portfolio surged by 8.7 per cent, while revenue (adjusted) climbed by 5.3 per cent year over year to £12,139 million.

On constant exchange rates, the company’s revenue (adjusted) surged by 4.1 per cent, reflecting the price/mix and diversification into new categories.

Due to significant investment in marketing, the company’s profit from continuing operations plunged by 1.3 per cent to £4,380 million in H1 FY19 and the operating margin plunged by more than 210 basis points.

The company’s basic EPS surged by 4.6 per cent to 123.2 pence in H1 FY19.  Net cash generated from operating activities declined by 41 per cent to £2,288 million.

The company’s diluted EPS (adjusted) surged by 8.8 per cent to 149.3 pence in H1 FY19. The company’s net debt (adjusted) surged by 1.8 per cent to £45,532 million at the end of the period. 

Driven by a continued strong financial performance in combustibles, the company reported adjusted revenue and adjusted profit from operations in line with the guidance, and revenue is expected to accelerate in the second half as the company has planned new product launches for the period. On a constant currency basis, the company is looking forward to generating 30 per cent to 50 per cent higher revenues derived from new categories, and the company is on track to achieve the mid-point of its guidance.

The company intends to consolidate its New Category portfolio into fewer brands as it seeks to create a stronger, simpler business and focus on building international brands. While New Category growth in the second half is expected to be driven by a focus on priority markets and new product launches and strategic brands will continue to grow. The company enjoys geographical diversity, helping it to avert political and economic instability in any one region. Keeping in mind the recent developments, it is also diversifying its business into new products.

BATS-Share price performance

While writing (as on 04 October 2019, at 02:35 PM GMT), British American Tobacco Plc shares were trading at GBX 2,772.5 per share, down by 0.59 per cent as compared to the previous day closing price. The market capitalisation of the stock stood at £64 billion.

BATS shares have registered a high of GBX 3,659.00 (as on 29 October 2018) and a low of GBX 2,249.00 (as on 17 May 2019) in the past one year.

At the time of writing, the stock’s volume stood at 920,314, before close of the market. Stock’s average daily traded volume for 5 days was 3,471,568.20; 30 days- 3,149,199.43 and 90 days – 3,085,531.40. The company’s stock beta (5Y monthly) was 1.41, which makes it more volatile as against the benchmark index.

The average daily traded volume for 5 days went up by 10.24 per cent as against 30 days’ average daily traded volume. At the time of writing, the stock of the company was trading below the 30-day and 60-day SMA.

In the past 1 month, BATS shares have delivered negative return of 4.24 per cent. Also, on a YTD (Year-to-Date) time interval, the stock surged by approximately 11.56 per cent and was down by 6.19 per cent in the prior three months.

 

Imperial Brands Plc

Fast-moving consumer goods (FMCG) company, Imperial Brands Plc (IMB), has a core business of tobacco and related products. The company focuses on innovation and developing its Next Generation Products (NGP) portfolio. In addition, the company has a range of cigarettes, cigars, smokeless tobacco and fine cut tobacco.

IMB-Recent developments

As notified by the company on 3rd October 2019, the CEO has started successor planning and will step down once a suitable candidate is found. Alison Cooper has served for more than 9 years as the CEO of the company and an overall 20 years in various positions within the company. The company’s Board is thankful to her for her immense contribution.

On 26th September 2019, the company announced its trading update. As per the update, the company expects its net revenue to be up by 2 per cent for the year ending 30th September 2019. The company expects its NGP portfolio will facilitate good growth of around 50 per cent in net revenues for FY 2019. From the Tobacco business, the company expects revenue to grow by a lower single digit with high operating profit. The company’s profits will be benefited by 2 per cent due to Translation FX. The group has made decent progress in the cost optimisation programme for the period.

IMB-Financial highlights for 1H FY19

In the first half of the financial year 2019, driven by a good underlying tobacco performance and strong growth in Next Generation Products portfolio, adjusted net revenue was up 3.8 per cent to £3,656 million from £3,523 million in H1 FY2018. The adjusted net revenue surged by 2.5 per cent on CER (constant exchange rate) basis.

The company’s revenue (reported) climbed by 2.3 per cent to £14,390 million in first half of fiscal year 2019 from £14,060 million in first half of fiscal year 2018. The company incurred lesser amortisation expenses during H1 FY19. As a result, the company’s operating profit (reported) surged by 38.1 per cent to £1,150 million in first half of fiscal year 2019 from £833 million in first half of fiscal year 2018.

On constant currency basis, the company’s operating profit (adjusted) plunged by 2.3 per cent and by 0.2 per cent on actual currency exchange rate basis to £1,620 million in first half of fiscal year 2019 from £1,624 million in first half of fiscal year 2018.

The company’s basic EPS (reported) surged by 37.7 per cent year over year to 71.2 pence. The company announced semi-annual dividend of 62.56 pence per share, payable in two instalments of 31.28 pence per share, each.

The group is facing significant market pressure in the mature European markets and the USA. Moreover, regulatory bodies are increasingly tightening regulations for NGP as well.

IMB-Share price performance

While writing (as on 04 October 2019, at 02:43 PM GMT), shares of Imperial Brands Plc were trading at GBX 1,812.4 per share, down by 1.5 per cent as compared to the previous close. The market capitalisation of the stock stood at £17.32 billion.

IMB shares have registered a high of GBX 2,789.00 (as on 09 November 2018) and a low of GBX 1,736.20 (as on 27 September 2019) in the past one year.

At the time of writing, the stock’s volume stood at 1,023,570, before market close. Stock’s average daily traded volume for 5 days was 5,282,454.80; 30 days- 2,621,748.00 and 90 days – 2,580,134.62. The company’s stock beta (5Y monthly) was 0.99, which makes it comparably volatile as against the benchmark index.

The average daily traded volume for 5 days went up by 101.49 per cent as against 30-day average daily traded volume. At the time of writing, the stock was trading below the 30-day and 60-day SMAs.

In the past 1 month, IMB shares have provided negative return of 14.54 per cent. Also, on a YTD (Year-to-Date) basis, the stock went down by approximately 22.59 per cent and was down by 7.26 per cent in the prior three months.