US Edition Imperial Tobacco
£21.03 +10p
Questor says BUY
Imperial Tobacco, which makes Davidoff, West and Gauloises Blondes cigarettes, as well as Golden Virginia rolling tobacco and Rizla papers, gave a reassuring full-year update yesterday.
The trends in volumes and revenue were as indicated at the end of the third quarter - and investors can now be confident that the group will meet consensus full-year forecasts.
Revenues at constant currency are expected to be up by about 2pc, with "particularly strong" performances in Eastern Europe, Asia-Pacific and the rest of EU regions. Volumes are expected to decline by about 2pc.
This demonstrates the trend of a slight decline in the market being offset by price increases - and an increased focus on emerging markets such as Eastern Europe.
The price war in Spain appears to be coming to an end and Imperial said "recent price increases will benefit our tobacco and logistics operations". Previously, Imperial had estimated that adjusted operating profits from Spain could fall by a maximum of £70m.
As far as other regions go, Imperial has a market share of about 45pc in the UK, according to analysts, although the economic background means trade is subdued. However, in the highly competitive US market the share is just 4pc. Imperial's German share is stable, with its market share in France slipping by 1 percentage point.
By historical standards the shares are looking cheap, trading on a September 2011 earnings multiple of 11.3 falling to 10.2 next year. The prospective yield is 4.4pc, rising to 5pc, which is very attractive for income seekers.
Imperial has changed its dividend policy from this year to increase the payout ratio to 50pc of adjusted earnings instead of 47pc. The shares were first recommended as a buy on November 30 2008 at £16.18 a share. They are now up 30pc compared with a market up 24pc.
The shares are still a buy.