Imperial Tobacco shares dip despite sales boost

Shares in Imperial Tobacco (IMT.L) dipped today as the world's fourth-largest cigarette maker signalled dividend growth may moderate after it met forecasts with a 14 per cent rise in half-year earnings.





The British maker of Lambert & Butler, West and Gauloises cigarettes said it retains its policy to pay out 50 per cent of earnings as dividend, but in the near-term this may moderate due to the cost of restructuring at its recent Altadis acquisition.



Imperial shares slipped as much as 6.5 per cent before trading off 5.3 percent at 15.45 pounds by 0922 GMT to be the FTSE 100 Index's FTSE biggest faller as analysts moved to cut their forecasts for the group's full-year dividend.



"Management is guiding towards a temporarily lower dividend payout to take into account Altadis cash restructuring costs," said analyst Eileen Khoo at brokers Morgan Stanley.



Fellow analyst Julian Hardwick at brokers RBS said this should imply a full-year dividend of around 70 pence a share against the 80.5p he had initially forecast.



Analysts said the move reflects management caution given the difficult environment and credit markets after paying 12.6 billion euros ($17.18 billion) for the Franco-Spanish group Altadis in January 2008 funded by a 4.9 billion pounds ($7.43 billion) rights issue and debt.



Imperial announced a flat dividend of 21p in line with its policy of paying out a third of last year's 63.1p annual dividend, but its dividend payout ratio is set to dip to around 44 percent from its long-term plan of 50 percent.



"In the near term, there may be some disappointment over the dividend, but we expect the focus to turn rapidly to the strong trading performance," said RBS's Hardwick.



The group posted adjusted earnings per share for the half-year to end-March of 71.8p a share ($1.09) largely in line with forecasts ranging from 69.4p to 72.4p and a consensus of 70.8p, with its earnings boosted by the acquisition of Altadis and the translation effect of the weak pound.



Chief Executive Gareth Davis said underlying profits rose 6 percent in the half-year and he expected "slightly stronger growth" in the second half helped by the late timing of the UK spring budget, downtrading to its value brands and as cigarette users move outside and smoke more in the summer months.



The UK financial budget on April 22, meant that pre-buying before the anticipated duty rise took place in early April and hence in Imperial's second-half, and not in its first-half when the budget is more traditionally held in March.



Davis said Imperial was well placed due to tobacco's resilience in a downturn, the range of its cheaper value brands and the growth in emerging markets which had helped to offset sluggish mature markets in Western Europe.



"Hopefully we will get out of this recession soon, but until then tobacco looks a pretty good place to be," he said on a conference call after first-half results.



Davis was comfortable with analysts consensus earnings forecast of 161p for its year to end-September, while remaining on track to deliver the cost savings from its Altadis deal which made Imperial the No. 2 player in Western Europe after Marlboro-maker Philip Morris International (PMI) (PM.N).



Analysts added Imperial's earnings reflected results from bigger rivals PMI and British American Tobacco (BATS.L) which both showed weak volumes offset by price rises.



Imperial said its cigarette volumes jumped 25 percent to 151.5 billion sticks, boosted by Altadis, with tobacco net revenues up 54 percent to 12.42 billion pounds, and operating profits up 49 per cent to 1.37 billion pounds. ($1=.6586 pounds) ($1=.7336 euros)

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