Equity prospects

IMPERIAL BRANDS

Maude Holloway, Trainee Research Analyst

Price£15.55

52 week high-low£26.73—£15.27

Net yield13.19%

Hist / pros per14.79—6.00

Equity market cap£14,824

Tobacco companies have historically shown themselves capable of withstanding everything regulators have thrown at them. In fact the barriers to entry are so high that incumbents are able to put through above-inflation price increases and still pay out nice healthy dividends. Not so in the Next Generation Product (NGP) market however, which is open to a host of new participants who are not subject to high regulation costs and can focus on innovation and marketing.

Imperial Brands has been criticised for being slow to enter the NGP market. Out of a total revenue of £8bn they receive £300m from NGPs with their core product, a closed system vape device called Blu. Having suffered last year from the health scandals in the US around the main product in the market, JUUL, they hope to see improvements this year as regulations hit the market. These regulations should strike open systems where the liquid tank can be refilled. The hope is that regulations will help to introduce barriers to any new entrants to the market.

It is unclear whether tobacco companies will continue to hold these NGP divisions or demerge and focus on pure tobacco production, where the competition remains low.

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