Imperial Brands: Cutting Long-Term Growth Outlook Due to Fast-Follower Strategy; Still Undervalued

We’ve reduced our long-term growth forecast for Imperial Brands to more accurately reflect the company’s focus on maximizing cash flow at the cost of reduced investment in next-generation productions. Our fair value estimate falls to GBX 2,300/$29 from GBX 2,900/$36. This implies a 2024 price/adjusted earnings ratio of 9.5 times, enterprise value/adjusted EBITDA of 7.5 times, and 6.5% dividend yield. These multiples are at the lower end of the tobacco peer group due to Imperial's weaker long-term growth from its fast-follower strategy.