Why is Imperial Brands so Cheap?

Expensive cigarettes can survive at least another 20 years.

Andrew Willis 15 October, 2021 | 4:28AM
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Andrew Willis: For better or for worse, there’s still a lot of demand for tobacco. The pandemic did little to disrupt sales, and despite having a severe ESG risk rating from Sustainalytics due to the social impact of cigarettes, we only see a mid-single-digit decline rate in volume for Imperial Brands.

However, this decline could accelerate faster, as the risk remains from increased regulation and taxation.  Sector director, Philip Gorham, looked at perhaps the worst-case scenario – and how much time tobacco companies have before they reach a tipping point with price and demand.

Australia, similar to Canada, has stripped cigarette packaging – but taken price a little further, to around 28 U.S. dollars a pack. This resulted in a drop in the smoking rate from 16 to 13%, which when considering the strong profit margins, doesn’t seem that bad.

We figure it might not be until 2046 that global pricing would reach a point where there’s a problem with sales. And when it comes to the risk from regulation, it’s worth considering that it also deters competition.

For Morningstar, I’m Andrew Willis.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Imperial Brands PLC25.95 USD2.37
Imperial Brands PLC ADR25.19 USD-0.71Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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