CONSUMER STAPLES: Imperial Brands (IMBLN; Baa3 Pos/BBB/BBB) FY trading update

'Technically' the first look from a tobacco on Q3 conditions- but it's pre-FY results trading update with limited financials (PM is next on the 22nd). Perhaps somewhat reassuringly to the sector it seems to be doing fine while running flat market share trends YTD. We do expect a Moody's upgrade but please be aware co is well behind peers in investing in growth segment (it refers to them as NGP/next-gen products). Boosted equity pay-outs instead of attempting to play catch-up is not nice to see. We do not see the 15bps it gives over BAT31s - who has a higher ~17% exposure to NGPs and is ~3x the size - as sufficient for the increased combustibles exposure. Similar issue in £.

• Adj. EBIT growth has improved in 2H (+2.8% in 1H) - as it expected. It has therefore left FY guidance unch for MSD growth in constant currency terms. The FX headwind to EBIT has increased from 3-3.5% to now 4%. Net its guidance is still pointing to ~1% growth.
• Strong growth in NGP (expects net revenue in +20-30% constant currency) with further reduction in operating loses (was -£50m loss in 1H and makes up a small 4% of group revenues).
• Expects leverage to remain at lower end of net 2-2.5x range (vs. 2.5x at 1H, 1.9x at FY23). We do expect a Moody's upgrade (we see gross eqv. to 2.8x at lower end of target vs. upgrade threshold of <3x) particularly given NGP is showing strong growth.
• Maintaining stable market share at group; re. 5 priority markets gains in USA, Spain & Australia offsetting declines in Germany & UK (unch from 1H).
• Equity returns boosted; FY24 annual dividend by +4.5% to £1.53/share (~£1.3b or a ~7.14% yield). That is on top of a £1.1b buyback it did this year (total ~£2.4b). FY25 returns boosted to total £2.8b including £1.25b in buybacks.

Full results for the FY to Sept come on the 19th Nov.