Member Info for tomglan

You'll receive 72p per share on 31st December which will bring the re-based cost price of shares purchased at the current market level to £16.25. If the dividend is maintained at £2.06 then that is a yield of 12.7% moving into 2020...

I really hope management isn't selling the premium cigar business to pay down some bonds that are costing it less than 4% a year in interest. I bet the return on the cigar assets is higher than that and with some growth prospects to boot! The current interest costs them £500m a year which is highly affordable for a company generating almost £3 billion of free cash flow. What I'd rather see is management spend the divestment proceeds on a huge buyback. Hoover up the remainder of Woodfords shares as well as all the other insti's that would rather hold McDonalds and Coca-Cola due to public health concerns with tobacco. If, for example, they received £1.5 billion that would cancel 88 million shares at the current price of £17. If you times 88 million by the projected FY dividend of £2.06 that is £181 million saved a year from dividend payouts to shareholders alone. How's that for a dividend cut?! ;-) ATB

Side note: I'm holding here from low £20s, appreciate both positive/negative points of view as good to get an overview of what people are thinking. According to the 2018 annual report 88% of IMB holders are institutional so everyone here is just coming along for their crazy ride!

IMB yielding 11.3% based on £2.065 FY dividend. BATS yielding 7.5% based on £2.03 FY dividend. IMB has less leverage but arguably weaker brands in vaping and cigarettes. IMB does well with premium cigars but is selling that part of the business soon. Why not split 50/50 and average a 9% yield and cover both bases?

Well since the nest pension fund only had £40m of tobacco related shares left (note: no mention of percentage of that in Imperial Brands) I doubt that would have made much difference... unless perhaps it spooked a few other PIs or instis into selling. I'd say the major factor out of the two is Woodford, however tobacco is being punished globally and is not limited to this company alone.

I've noticed the percentage short has come down from over 10% in May to around 6-7% now. I also wonder how much the Woodford fallout is impacting Jupiter? We we able to hoover up a few of his ex-clients? We'll find out on 30th July I suppose. ATB

I've been following the tobacco companies for a while but only seriously got interested when the yield surpassed 7%, at that point the risk/reward profile became compelling enough for me to build a decent position. There was a similar thing a few years back when BP and Shell (during the BG buyout) were offering yields close to 10%. Everyone was worried about the future of oil then... now the market has shifted to focus on the future of tobacco. Never mind which one has more of an impact on our planet and economies. Personally I hold no grudges towards new holders that have been waiting on the sidelines to buy in at a discount. I did the same thing with Next Plc, refusing to buy shares for £80 but managing to get my price of £40 a few years later thanks to Brexit.

Got this response from IR on buybacks:

I understand your point and its one we’ve discussed with several other investors.

I think whilst the financials clearly look compelling at this level one also has to consider buybacks within the overall context of the Groups capital allocation policy which is something the Board look at on a regular basis.

Tactical buybacks are one option but in my experience buybacks derive the greatest benefit for shareholders when they are a sustained part of the overall distribution of capital.

Clearly the valuation, yield, dividend etc. are part of the overall mix when the Board look at this but we also have to consider the need to delever the balance sheet further too.

Rest assured that this is a live area of debate within the Group and management are fully aware of your particular challenge.

I don't know who to believe... on one hand you have the Chief Financial Officer saying the dividend payout ratio is 70% and on the other you have Velo's treatise suggesting it's uncovered? ;-)

Velo, my final thoughts on this matter is a simple question: If a company earned £1,000 in profit but had to report it as £500 due to the amortisation of acquisitions made years ago how much cash does it have available to for dividends, debt reduction, capex etc? Hint: the answer is not £500.

Velo I was simply showing how cash flowed through the business, all figures were pulled from the 2018 annual report so there shouldn't be anything contentious there. I stand by my last point that the dividend cover of 0.76 reported earnings does not paint a true picture as it suggests the company is borrowing to pay dividends, which is not the case. To accuse me of buyers bias whilst admitting to being deeply underwater suggests some degree of psychological projection.

Bismarck I suggest you look at the cash flow statement to get a better idea of the business. For example, in 2018 the company generated approx. £3100m from operations, spent £230m on investments, paid off £650m (net) of debt, paid shareholders £1700m in dividends (another 10% increase), it also sold a subsidiary for £200m and paid £500m in interest on its debt. This meant the company finished the year with around £200m more cash than the previous year.

So in simple terms the company managed to increase the dividend by 10%, reduce debt by a decent chunk and invest for the future whilst also increasing cash reserves by a couple hundred million. If you simply look at the 0.76 reported dividend cover and panic that it's unsustainable you are not getting the full picture in my view. ATB

Bismarck, this is how the dividend cover is calculated. Go to the 2018 annual report and look for the earnings per share figures on page 1. Imperial has two figures for EPS, one is reported using GAAP and comes to £1.43 EPS the other is adjusted and comes to £2.72. The adjusted figure adds back various items that management believe obscures true performance i.e. amortisation, you can find the breakdown table on page 102.

So therefore we adjusted dividend cover of £2.72 adj eps / 1.88 div = 1.45.
We also have reported dividend cover of £1.42 eps / £1.88 div = 0.67.

One figure suggests the company is making ample cash to cover dividends and reduce debt the other suggests they are borrowing to pay the bills. You'll need to look at net debt levels and the balance sheet over the last few years to work out which is one represents the true economics of the business. ATB

All the best Skeletor, I'm holding as based on my re-based cost price I'm getting almost 9% dividend yield here. Even if management decide to give it a trim it should still look quite healthy. Agree RE markets... Imperial Brands caught my attention sitting on a 10% dividend yield in plain sight...

I remember when the company 'lost' $140m of shareholders money to a bank connected to Kostyantyn Zhevago in 2016. The shares subsequently fell to 15p. You have been warned. DYOR

Given the short interest and sentiment towards asset managers I think a lot of people hedged these results. Looks like a few buying back in now and causing a small pop in price. I decided to hold through results but definitely considered selling on more than one occasion. Happy to take the 28.5p dividend and hope that AUM can be built back up over time. ATB

I'm in the same boat Skeletor. The short interest rising from 4% to 8% in a month is also cause for concern in my view. I'm probably going to hold and see what happens...

Benefit of the doubt it may have been a drafting error. However, it's not like they included the $103m loss anywhere in the 2017 annual report or prospectus so that investors could make a clear judgement on revenues from spreads/charges/market p&l. They neglected to draw attention to this at a time the founders were selling huge amounts of shares, the founders knew the full story, investors didn't.

No, the important part was them admitting to lying about the nature of revenues in the 2016 and 2017 full year reports.

RetiredBanker, yes it was nice of them to offer an apology on Friday after knowing about the issue from Tuesday morning. In the meantime the price was trashed. I merely pointed out the inconsistencies as soon as I spotted them as the entire point of the annual report is to give a true and fair representation of the business. I know the financial statements are correct as I've received many dividends from them, however what was previously hidden was how P&L impacted revenues in previous years.

This needs to be suspended until the accounting position is clarified by the company. At the moment either the prospectus, 2017 accounts or 2018 is materially incorrect. How can this trade when the numbers for the last two years cannot be trusted?