Cigarette price rises make up for falling sales volumes at Imperial Tobacco

According to the statement of Imperial Tobacco, cigarette price rises at the tobacco company appeared to be the cause for a drop in volumes.

On July this year the cigarette maker said that it would be adding 25p to a packet in the UK, on top of the 37P growth in budget of this year. Previous price rises in this year increased net tobacco income by 3%, but volumes decreased by 3%.

Imperial Tobacco Brands

Imperial Tobacco cigarette brands

Imperial Tobacco has gained profit from selling Cuban cigars in emerging markets, but the crisis in Europe has declined volumes in Spain.

Chief executive Alison Cooper said that challenging conditions continue to exist in some markets but the company has a strong record of providing growth in this environment and stay in a good position to continue increasing value for shareholders.

Imperial Tobacco said that it continued to deny the plain packaging idea which, in Imperial’s opinion, is not based on reliable proof and will be a cause for increasing illegal trade in tobacco. It indents to submission to the UK consulting committee, and expects the result of a court hearing in Australia to be declared later in the year.

Imperial has put in 17p to £24.66 in an uncertain stock market.

Analyst Martin Deboo at Investec said: “The third quarter has come in below our expectations with an estimated volume decrease in the quarter of around 1 percent against our expectation of positive 2 percent. The tobacco company remains comfortable with the 2012 full year agreement. There should have been appropriate share momentum out of the second quarter, and the third quarter produced the poorest volume comparative of the year. Imperial Tobacco still preserves preference over British American Tobacco, given the valuation discount.”

Eddy Hargreaves at Canaccord Genuity said that they continue to consider Imperial as a especially low-priced defensive stock, which is performing together with expectations in a heavy broader market environment. The pricing power is obvious, and there are increasing signs that the top line can be maintained by better brand innovation and marketing. A promising example of this can be the launch of Davidoff ID.

He added that a potential purchase of Imperial Tobacco was possible in the longer term, but unlikely on a short-term basis.

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