Imperial launches £1bn buyback programme

Imperial Brands has launched a £1bn share buyback program to reward shareholders after a year in which investors seeking refuge in Big Tobacco helped the British cigarette maker become one of the FTSE 100’s best-performing stocks belong.

Imperial, behind brands from Gauloises to Davidoff, said Thursday trade was in line with expectations for the year to the end of September, adding that it had benefited from a weaker pound and buoyant duty-free sales as international travel returned .

The UK-based tobacco giant said it would buy back £1 billion of shares – about 5.5 percent of the group’s equity – over the next 12 months. Along with the ordinary dividend, the company is expected to return £2.3 billion of capital to shareholders over the next year.

Imperial shares rose 4.2 percent to £19.76 in early morning trading.

CEO Stefan Bomhard said the buyback program is an “important milestone” in management’s five-year strategy, in which the company has reduced its net debt to ebitda (earnings before interest, taxes, depreciation and amortization) ratio to between 2 and 2.5 times and promised to return excess capital to shareholders.

The company is also increasing investments in its five core markets and in next-generation products, including vape and tobacco heating products, as part of its turnaround plan.

Bomhard said the buyback program was “underpinned” by the company’s “improving performance” and its “confidence in continuing to generate strong cash flows to support growing shareholder returns in the years to come.”

Imperial, which is also behind brands like blu and Rizla, is among a minority of FTSE 100 companies to have posted positive shareholder returns so far this year and is among the 10 best-performing stocks in the blue-chip index.

Rae Maile, an analyst at Panmure Gordon, said the funds were previously pulled from Big Tobacco as part of an ESG campaign, but the economic turmoil in the wake of the Russian invasion of Ukraine lured them back.

Unlike much of the FTSE, “these stocks were at seven times earnings, delivering their earnings numbers, and because they’re massive earners overseas, they ended up doing currency appreciation as well, so the whole ESG perspective was a little harder to justify,” he said he maile.

James Edwardes Jones, an analyst at RBC Capital Markets, said that tobacco’s “addictive nature” also makes it “very resilient during periods of economic downturn that many investors are positioning for.”

The launch of Imperial’s share buyback program is the latest in a series of London- and New York-listed companies turning to share buybacks. Rival British American Tobacco launched a year-long $2bn program in February.

“The tobacco industry has more cash flow than it can possibly reinvest in its business and there’s no point in constantly paying off debt,” Maile said. “They have repaid their debt to a level where the rating agencies now seem comfortable and can therefore begin returning their excess cash flow to shareholders, which is right and proper.”