JPMorgan upgrades Imperial Brands to 'overweight'

JPMorgan Cazenove upgraded its rating on shares of Imperial Brands on Friday to ‘overweight’ from ‘neutral’, as it said the current valuation is pricing in severe downside risks, leaving the risk/reward tilted strongly to the upside following the dividend cut in May.

"Supported by its robust free cash flow…we see IMB’s circa 50% payout ratio as sustainable with a further £1bn+ per annum available for cash returns or M&A from FY23e in our base case," said JPM.

The bank also said that with IMB’s valuation discounting its "listless direction", the arrival of new external chief executive Stefan Bomhard provides free optionality should he show competency and his new perspective can begin to re-build investor confidence.

JPM cut its price target on Imperial Brands to 1,650p from 1,700p.

At 1010 BST, the shares were up 2.1% at 1,296p.