Investment Column: Imperial caught in a political wind

Imperial Tobacco, Britain's second-biggest cigarette group, is faced with a barrage of problems which would cause most companies to blanch.

Yesterday's announcement that the Government is set to outlaw tobacco advertising is a straw which gives a strong clue to the way the political wind is blowing. Tobacco duty, already raised 15p by the Tories in November, looks set to be a prime target of a Labour government seeking ways to raise money without increasing income tax in its forthcoming Budget.

And it is not just the UK where Imps faces political difficulties. The French government, facing stringent Maastricht criteria for European monetary union, has attempted to protect its revenues by preventing tobacco companies from cutting prices to match Rothmans, whose cut-price brand has scooped 6 per cent of the market.

Given the difficult environment, it is testimony to the management that Imperial has produced a highly respectable set of results for its first period since the demerger from the Hanson conglomerate in October. Pre- tax profits fell from pounds 174m to pounds 143m in the six months to March, but that was all to do with the need to pay a pounds 40m interest bill to outside lenders for the first time. Underlying operating profits were actually up 5.2 per cent to pounds 183m.

The UK market, still Imperial's biggest, continues its gentle decline, with increased pressure on smokers to "downtrade" to cheaper brands. Although this hits the company's mid-market brands, such as Embassy and John Player Special, it boosts the value-for-money end of the sector where Imps, with its Lambert & Butler product, is relatively stronger than arch-rival Gallaher.

But the real hope for growth comes from overseas. Excluding the Rizla cigarette papers business acquired for pounds 185m in January, non-UK profits rose pounds 2m to pounds 34m in the period.

The shares, up 2p at 403.5p, stand on a lowly forward p/e of 10 on Barclays de Zoete Wedd's forecast of pounds 310m profits for this year.

As well as politics, the shadow of litigation is starting to move across Imperial from the other side of the Atlantic. The shares are cheap, but progress from here is unpredictable, given the external factors, and choice in the sector is about to be expanded with Gallaher due to publish its flotation details tomorrow. Hold.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific