Imperial Brands Plans Buyback After Abandoning Dividend Target

(Bloomberg) -- Imperial Brands Plc abandoned its dividend target after competition from electronic-cigarette maker Juul Labs Inc. eroded revenue growth at the smallest of the world’s major tobacco companies.

The maker of Winston cigarettes said Monday that this is the last fiscal year that it will keep its dividend increase steady at 10%. The stock rose as much as 2.7% in morning trading in London after the company announced a 200 million-pound ($250 million) share buyback program to ease the transition away from the decade-old policy.

Imperial’s full-year revenue growth target is at risk as newcomer Juul has gobbled up nearly half of the U.S. vaping market in the past three years, according to Euromonitor figures. Meanwhile, larger rivals Philip Morris International Inc. and British American Tobacco Plc have bigger research budgets to add new smoking alternatives, clouding the outlook for Imperial.

“This is something investors have been asking for, to abandon a restrictive dividend policy,” said Alicia Forry, an analyst at Investec.

The shares have lost half their value since their peak in 2016 and are trading near an eight-year low.

Imperial has been trying to raise as much as 2 billion pounds through an asset disposal program announced in 2018. While proceeds so far have only been about 280 million pounds, the company said Monday that the plan is on track for completion by May, at which time it will decide how to use the proceeds. In April, Imperial flagged a plan to sell its premium cigar business, which distributes Cuban brands such as Cohiba.

The 2 billion-pound target was always an optimistic, blue-sky scenario, according to Liberum’s Nico von Stackelberg. He added that the company’s premium-cigar business may well fetch 1.5 billion pounds, while some other assets may also be on the table.

Imperial’s dividend policy will cost it a total of almost 2 billion pounds this year. Keeping the 10% target would have meant the company would have had to devote at least 200 million pounds a year to increasing dividends.

The company’s attempt to improve its financial position “looks precarious, based as it is on profitability from an industry undergoing significant disruption,” wrote James Edwardes Jones, an analyst at RBC Europe.

Fitch Ratings said in April that tobacco companies including Imperial Brands have “low rating headroom” due to generous shareholder return policies and as the market for traditional cigarettes shrinks. The agency rates Imperial Brands debt “BBB,” which is the lowest level considered investment-grade.

--With assistance from Lisa Pham.

To contact the reporter on this story: Corinne Gretler in Zurich at cgretler1@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, Thomas Mulier, John Lauerman

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