RBC reiterates 'underperform' on Imperial Brands, expects dividend cut

Analysts at RBC reiterated their 'underperform' recommendation for shares of Imperial Brands, telling clients that the company still had more to do to clean up its accounting and that they were expecting the dividend to be cut during the current financial year.

On the plus side, the company did rebase markets' expectations, with management now forecasting low single-digit organic revenue growth in the 2020 financial year.

RBC had already penciled-in growth of about 0.5% for 2020-22, so the broker's estimates were not "materially" impacted by the latest set of full-year results from the company.

Indeed, the latest move from the company meant that it now had "the potential to surprise on the upside rather than continuing its tendency to over-promise and under-deliver."

It had also cleaned up its accounting "to some extent", introducing a new measure of operating profits that excluded 'other income'.

But restructuring costs would continue to be excluded as well, at least until the end of 2020 financial year.

That was significant because Imperial had the highest restructuring expense/sales ratio in the broker's coverage, something that for RBC "needed to change".

And the dividend was at risk, the broker added.

"We think the next CEO faces a significant challenge in turning around the downwards trajectory of the business and forecast a dividend cut in FY20E, which would at least speed up deleveraging as well as give more room for a step up in investment in NGPs."

RBC had a target price of 1,600.0p for shares of Imperial.