UK: Emerging Markets Lift Imperial Tobacco

Source from:  ft.com 09/21/2012

Smokers in emerging markets have helped boost revenues at Imperial Tobacco as the FTSE 100 company reaffirmed full-year profit guidance amid investor fears about the impact of new tobacco regulation on earnings. In a trading statement the owner of the Gauloises and Lambert & Butler brands said tobacco net revenues for the year to September 30 were expected to rise by 4 per cent compared with the year before after a strong performance in eastern Europe, Asia-Pacific, Africa and the Middle East. That would help offset a projected 3 per cent decline in overall tobacco volumes, measured by the industry as "stick equivalents". Analysts at Investec estimate that Imperial will earn ￡3.4bn before interest, tax, depreciation and amortisation from ￡8bn in revenues when the company reports its results next month. Damian McNeela, an analyst at Panmure, said: "It's a relief, given the degree of nervousness ahead of the statement. "Although the stick equivalent volume decline of 3 per cent is slightly disappointing and indicates no improvement on the first nine month's performance." The Bristol company said the volume declines were mainly due to weaker demand for cigarettes in Ukraine and loose tobacco in Poland, along with international trading sanctions in Syria. This month Imperial shares suffered their steepest weekly price fall in three years after news that the French government was considering introducing strict plain packaging laws and Russia was considering banning smoking in public. It follows Australia's decision to enforce plain packaging. Brand logos will this December be replaced by graphic pictorial warnings against tobacco. Britain is also expected to address the issue shortly, having concluded a consultation last month. The EU is scheduled to deliver a tobacco directive before the end of the year. Imperial takes about a third of group earnings from France, the UK and Australia. Shares rose 63p, or 2.7 per cent, to close at ￡23.99. ● FT Comment It comes as little surprise that better-off smokers in the developing world have helped Imperial offset cash-strapped Europe. But longer-term problems remain. Out of the big four tobacco companies Imperial is the most exposed to mature markets – and new regulation and declining smoking rates. That is partly why its shares have underperformed the wider FTSE 100 index by about 10 per cent since mid-July. To counter that the company's cigar-puffing chief executive, Alison Cooper, has split the company's four big brands between the value end of the market – growing in Europe – and the premium end which is expanding faster elsewhere. Trading at under 11 times 2013 earnings, compared with British American Tobacco on 15 times, that could prove decent value if the premium-value balance is not upset by national regulators. Enditem