Imperial Brands shares 'too cheap' for RBC Capital

Perusing the interim numbers that showed tobacco sales volumes and net revenue at constant currencies down 2% in the six months to 31 March, analysts at RBC said their "worst fears have not arisen", with volume and revenue declines within expected ranges.

Adjusted earnings per share shrank 6.2% to 114.3p but beating the consensus forecast of 111.9p.

While volume and revenue declined, it was felt to be a solid performance: "Things seems to be going to plan for the first time in a while at Imperial," RBC said.

"EBIT 1% ahead of consensus expectations – with no funnies that we’ve found so far – is also welcome."

RBC noted management are "doing the right things to fix its top line" as although market share in key markets is comparable to competitors, the portfolio has been "too fragmented" so that the low penetration of the growth brands has been acting as a "substantial drag" on organic growth.

With the shares trading for just over 10 times calendar 2019 EPS, a 48% discount to the sector, with a 9.3% free cash flow yield and 7.8% dividend yield, RBC think Imperial is "too cheap". An 'outperform' rating and £28 price target were reiterated.