Imperial Brands Earnings: Shares Look Undervalued as Second Half of the Year Should Improve

Key Morningstar Metrics for Imperial Brands

• Fair Value Estimate
  : £33
• Morningstar Rating
  : ★★★★
• Morningstar Economic Moat Rating
  : Wide
• Morningstar Uncertainty Rating
  : Medium

What We Thought of Imperial Brands’ Earnings

Imperial Brands IMB reported 1.8% net revenue growth and 1.3% adjusted operating profit growth for tobacco and next-generation products at constant currency in its first-half fiscal 2026. It maintained full-year guidance of low-single-digit revenue growth and 3%-5% AOP growth.

Why it matters: Tobacco is far more important to Imperial’s valuation, and it saw volume-share losses in the first half. Its fast-follower NGP strategy has led it to continue lagging peers in revenue (just 5% of revenue, excluding the distribution business).

• In recent years, Imperial has successfully stabilized volume market share in its top five tobacco markets. We aren’t too concerned about the share losses, as they largely reflect a greater focus on profitability, with guidance maintained at 3%-5% adjusted operating profit growth for fiscal 2026.
• NGP remains a minor value driver, so we aren’t too concerned by the challenged results in the first half. Still, performance should improve in the back half. In the US, increased promotions for its Zone nicotine pouches should ease, while the exit in US vape should help margins.

The bottom line: We’ve maintained our pound-denominated fair value estimate of £3,300 per share for wide-moat Imperial Brands. However, we’ve raised our dollar-denominated fair value estimate to USD 45 per share on a stronger pound sterling relative to the dollar.

• Imperial shares look undervalued to us. Shares have fallen about 8% since the trading update on April 14, as we think the market was concerned about volume-share losses. However, we aren’t too concerned, as some of this was attributable to Imperial prioritizing value over volume.
• The benefit of Imperial’s strategy is that the firm continues to generate robust free cash flow to the firm, leading to £0.7 billion in repurchases during the first half. The drawback is that long-term revenue growth is lower than that of many of its peers.