Imperial Brands: Shares Undervalued Amid Market Concerns on Combustibles

Key Morningstar Metrics for Imperial Brands

• Fair Value Estimate
  : GBX 3,400
• Morningstar Rating
  : ★★★★
• Morningstar Economic Moat Rating
  : Wide
• Morningstar Uncertainty Rating
  : Medium

Fiscal 2026 is nearing its end, and Imperial Brands IMB will release results in October. Shares have fallen 20% year to date, severely underperforming its tobacco peers. While it reported 2% net revenue growth in the first half, concerns around share losses have intensified.

Why it matters: Volume share losses in its top five markets are worrisome but likely reflected an intent to focus on the most profitable market segments. As we await full-year fiscal 2026 results, we’re eager to see if the losses were truly one-time in nature or the beginning of a longer-term trend.

• We forecast just 1.4% of average annual revenue growth over the next five years, so it appears to us that the market is pricing in further market share losses in the secularly declining category. Investor concerns could be alleviated if Imperial’s second-half results reflect some stabilization.
• Imperial’s next-generation products also underwhelmed in the first half as operating losses grew. While the exit from the US vape market should help profitability in the near term, it also limits the potential contribution to revenue growth.

The bottom line: We’ve raised our pound-denominated our fair value estimate to GBX 3,400 per share from GBX 3,300 for wide-moat Imperial due to the time value of money. Our US dollar-denominated fair value estimate remains in place at USD 45 per share due to exchange rate changes.

• Shares have declined 20% year to date, compared with roughly 20% gains for wide-moat Philip Morris, Altria, and Japan Tobacco while British American Tobacco has been roughly flat.
• Imperial’s shares look undervalued to us, as we think the market worries about share losses in its top five markets and the increased operating losses in next-generation products in its first-half results. However, we think this overestimates the likelihood of continued share losses.