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CONSUMER STAPLES: Imperial Brands (Baa3 Pos / BBB) FY update (follow up)

CONSUMER STAPLES
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  • Equities happy with boosted pay-outs (below) but we continue to encourage caution on the combustibles heavy exposure that gives only a ~10bp penalisation vs. BAT (on avg.) across both € and £. We do expect a Moody's upgrade.
  • Not all bad with the co - it did better on pricing to offset volume declines in the 1H with today indicative it is continuing that. It's more premium exposure allows it to run a impressive 40-handle operating margin and BS is levered low - but so are peers on latter.
  • We are more worried for Altria (US only, reports 31st) and BAT (44%, no qtrly) who are facing weak US cigarette conditions. Both struggled to offset the -10% market volume falls in 1H. Adding to that Altria - and to a smaller extent BAT - are facing market share issues in higher-growth non-combustibles. Nothing on US conditions today for read-through (Imperial 20% exposed)
  • PM next on the 22nd but has ~no US combustibles exposure. Unlike BAT/MO it also had no issues on non-combustibles riding market share gains (most revenue from the IQOS HTU units). It is helping it have a stellar year - we see it as the sector lowest beta by some distance.

Equity takes here, numbers from before.

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  • Equities happy with boosted pay-outs (below) but we continue to encourage caution on the combustibles heavy exposure that gives only a ~10bp penalisation vs. BAT (on avg.) across both € and £. We do expect a Moody's upgrade.
  • Not all bad with the co - it did better on pricing to offset volume declines in the 1H with today indicative it is continuing that. It's more premium exposure allows it to run a impressive 40-handle operating margin and BS is levered low - but so are peers on latter.
  • We are more worried for Altria (US only, reports 31st) and BAT (44%, no qtrly) who are facing weak US cigarette conditions. Both struggled to offset the -10% market volume falls in 1H. Adding to that Altria - and to a smaller extent BAT - are facing market share issues in higher-growth non-combustibles. Nothing on US conditions today for read-through (Imperial 20% exposed)
  • PM next on the 22nd but has ~no US combustibles exposure. Unlike BAT/MO it also had no issues on non-combustibles riding market share gains (most revenue from the IQOS HTU units). It is helping it have a stellar year - we see it as the sector lowest beta by some distance.

Equity takes here, numbers from before.