Judged by yesterday's results, that is no surprise. Imperial reckons the UK cigarette market shrank by 5 per cent last year as a result of sharp increases in tobacco duty. With the price of a packet 19p dearer from yesterday, consumption is bound to carry on falling. And since the price hikes are prompting smokers to switch to cheaper brands, Imperial is also struggling to hang on to its market share. The looming advertising ban will make it even harder for the group to defend premium brands such as Embassy.
That said, Imperial has several factors in its favour. In true Hanson form, the management keeps finding new ways of squeezing extra productivity out of the business. Then there's expansion in international markets. Strip out the effects of the strong pound and the first-time contribution from cigarette paper maker Rizla, which Imperial bought in January, and underlying profits in the international businesses rose 17 per cent. That's in spite of a disastrous 24 per cent slump in French volumes as a result of a government price freeze.
Finally, there's Rizla, which chipped in operating profits of pounds 16m in eight months. Although Imperial has already squeezed some cost savings out of the company, other measures, such as merging the sales forces, have yet to show up in its bottom line.
All this means Imperial's profits should continue to grow. BZW expects an 11 per cent rise to pounds 340m this year, putting the shares, up 1p to 395p, on a forward earnings multiple of just nine.
Although twin threats of taxation and litigation justify a discount to the market, the current rating makes no allowance for Imperial's growth potential or the possibility of a bid. Good value.