Imperial's Fast-Follower Strategy Weighs on Growth but Should Generate Meaningful Free Cash Flow

Imperial Brands is in the middle of a five-year strategic plan launched in 2021 that looked to position the firm as a fast follower in next-generation products while strengthening its share in its most important markets. This makes sense, given its relatively smaller size to peers like Philip Morris International and British American Tobacco, which leaves it less financial capacity to lead innovation. Although this means Imperial will be more exposed to cigarettes, it also implies that it can maximize its free cash flow generation and returns to shareholders.