Neil Woodford on Imperial Brands: Trading at the Wrong Price

Neil Woodford Imperial brands

A glance at Neil Woodford’s top holdings reveals that the portfolio manager is clearly bullish about Imperial Brands’ (LON: IMB) prospects at present.

Indeed, at the end of January, the tobacco manufacturer was the top holding in both his Equity Income fund (6.75% weighting) and his Income Focus fund (6.96% weighting).

Share price fall

Sentiment towards Imperial is quite negative at the moment, with the stock having drifted down from 3,800p a year ago, to under 2,600p today. That’s despite a dividend increase of 10% from the company back in November.

Should dividend investors be concerned about the current share price downtrend?

Here’s the view from Woodford Investment Management, taken from the company’s website:

Current market conditions have not been favourable for Imperial Brands, which has been a deeply unpopular stock. Nevertheless, from a fundamental perspective, Imperial Brands continues to be a business which should deliver attractive and sustainable long-term dividend growth, as it has done throughout its history as a quoted, independent business. With the share price revisiting valuation territory that we haven’t seen in many years, Imperial Brands simply looks like it is trading at the wrong price.

Woodford Investment Management also made reference to Imperial’s 7th February AGM statement, noting that cash generation remains strong and that the company has reiterated its commitment to 10% dividend growth. The investment management house commented:

Overall, the update is as expected and it suggests that the business is in far better shape than its share price and valuation would suggest.”

7.2% yield

I agree with Woodford’s stance on Imperial Brands.

To my mind, the current share price offers an excellent opportunity for dividend investors.

The share price fall has pushed Imperial’s forward-looking P/E ratio down to 9.9 and the prospective dividend yield now stands at 7.2%.

For a company that has registered nine consecutive years of 10% dividend growth, those metrics look too cheap to me.


Disclosure: Edward Sheldon, CFA owns shares in Imperial Brands.

This article is provided for general information only and is not intended to be investment advice. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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1 Comment

  • Edward,

    Your quoted 9.9 p/e is using IMB’s adjusted earnings.

    If you check the diluted share EPS you’ll see that it is not as undervalued as it initially seems.

    Take a look over the previous 5years and the company is forever boosting adjusted earnings meaning that the ‘exceptional’ costs factored out aren’t so exceptional after all.

    Enjoying the blog,


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