Imperial Tobacco reports strong sales momentum

Imperial Tobacco (IMT) said its current performance is set to meet ambitious expectations for the financial year to October 2012, with strong sales momentum in emerging markets.

Investors responded positively to the interim management statement, increasing their exposure to the company and sending the share price higher.

"Our continued focus on realising opportunities from our total tobacco portfolio supported by innovation and price optimisation has delivered underlying tobacco net revenue growth of 3% in the first quarter," said Alison Cooper, chief executive officer at Imperial Tobacco. She emphasised that the "focus on consumer-relevant innovation and new formats" has been driving growth, especially in emerging markets.

However, as one analyst noted, despite the overall story being positive, market share in Europe has suffered. Spain has continued to cement its position as the pariah in European performance for the company with double-digit declines in volumes, with the headline performance figures excluding it and several other countries.

"The interim management statement leaves Imperial a little more to prove [in the second, third and fourth quarters], especially given the focus on 'long-term' margins in Europe. But we still think the shares offer compelling value," commented Eddy Hargreaves, analyst at Collins Stewart, which has maintained its 'buy' rating on the stock.

"In a low economic growth environment, we believe companies with pricing power will outperform - Imperial operates in a highly-consolidated market, with strong pricing power," Kililik & Co suggested in a research note.

Despite the market not being wholly convinced about the group achieving its strategic ambitions, Killik maintained its 'buy' position, with shares offering an attractive yield and an expected above-inflation dividend rate. "Looking forward, Imperial will continue to gradually increase the dividend payout ratio by steadily growing dividends per share ahead of adjusted earnings per share," it added.

As part of Imperial Tobacco's strategy a number of changes to the board have be announced, with Mark Williamson appointed senior independent director and Malcolm Wyman taking the position of chairman of the audit committee.

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