Key Insights About IMB And BAKK

  • Aug 19, 2019 BST
  • Team Kalkine
Key Insights About IMB And BAKK

Imperial Brands Plc

Company overview

United Kingdom-Headquartered, Imperial Brands Plc (LSE: IMB) is a leading fast-moving consumer company, previously known as Imperial Tobacco Group Plc. The group produces a variety of cigarettes and cigars and has also developed its next-generation smoking product called "blue". The group has increased its attention towards the development and expansion of its "Next-generation product portfolio".  Its Next Earning Results is scheduled on August 28, 2019.

Recently the company which is the producer of Winston and Lambert & Butler cigarettes has assured to dispose of some of its tobacco brands. It also made an announcement to invest in cigarettes alternatives as the company is struggling in western markets as smokers are plummeting over there.

In May 2019, the company reported statement regarding US cigarettes volume trends, in which study conducted by Management Science Associates Inc. (MSAi) reported volume trend for the four weeks ended to May 18 and 52-week ended to May 18 2019, which reflects that during the four weeks under consideration, volumes fell off by 6.4 per cent and in the past 52-weeks under review, volume plummeted by 4.9 per cent.

In July, this year, the board of directors of the Imperial Brands Plc announced revised capital allocation and shareholder distribution policies. It reaffirmed the 10% dividend growth with regards to the final dividend for the FY19 ending on September 30, 2019. The group stated that FY19 dividend remains unchanged at 10% growth as of the last year.

Key highlights of the revised capital allocation.

  1. Further capital allocation in organic growth opportunities and Next Generation Products.
  2. To deploy capital in targeted Merger & Acquisition alternatives to enhance the capabilities and technologies for their Next Generation Products and in other potential areas of growth.
  3. Active capital management through the company's ongoing divestment programmes, which remains the first concern for the company. Also, it is on the way to realise proceeds of up to £2bn before May 2020, and it will further work to identify the opportunities to deploy the realised proceeds including Share Buy Back and debt management.
  4. Also, it is targeting for a strong balance sheet with investment-grade credit score and aiming to bring a Net-Debt/ EBIDTA gearing in between 2-2.5 times.

In April 2019, a division of Imperial Brands, which is the manufacturer of Cohiba and Montecristo cigars made its intentions clear to sell its worldwide premium cigar business as per the group’s divestment agenda. This will strengthen the group's ongoing simplification program and proceeds from the divestment of Cigar business would be utilised towards debt reduction and in its growth agenda. This segment has done well in the past over numbers of years with decent revenues and profit growth. By May 2020, the ongoing divestment programme is expected to realise proceeds of up to £2 bn. Disposal of the group’s cigar business was suggested by AZ Capital.

Stock Performance and Analysis

5-year daily price chart (as on August 19, 2019), before the market close. (Source: Thomson Reuters).

At the current trading level as highlighted in the price chart, shares were trading below its 5-year ago price of GBX 2,585/share and plummeted approximately 30% in the past one-year and were quoting at GBX 2,112.0 (as on August 19, 2019, before the market close, at 11:45 AM GMT) and added 22 points or 1.05% in day's session. In the past 52-week period, its shares have registered a high of GBX 3,009 and a low of GBX 1,821.40 respectively, and at the current trading level, its shares were quoting approximately 29% below the 52-week high price level and 15.9% above the 52-week price level respectively. The outstanding market capitalisation of the company stood at £20.2bn, which ranks it among the large-cap companies listed on the London Stock Exchange.

From the simple moving average (SMA) standpoint, shares of IMB was hovering substantially below the 200-day SMA price level. The stock has declined more than 12% on a Year-to-Date basis.

However, the 14-day and 9-day Relative Strength Index was oscillating in a neutral zone and also at the current trading level, the stock started trading above the Middle Bollinger Band® (20-day SMA price) and tending towards the upper Bollinger Band®. From the volume standpoint, the average daily shares traded in the past 5-days was approximately 30% below the average daily shares traded on the London Stock Exchange.

Market Ratios

The LTM Price-to-Earnings (PE) ratio of the company stood at 12.86x, whereas industry LT PE stood at 20.6x, the LTM Price-to-Sales (P/Sales) ratio was at 0.66x against the industry average LTM P/Sales ratio of 4.47x, LTM Price-to-Cash flow ratio of the company stood at 18.39x as compared with the industry average LTM P/CF (x) of 47.89x and in terms of LTM Price-Book Value (P/BV) ratio, the company LTM P/BV stood at 4.07x against the industry average of 13.01x. The above-mentioned parameters reflect that shares of the LSE: IMB was trading at a lower market multiple ratio against the industry. Also, at the current trading level as highlighted above in the price chart, the dividend yield of the company was at 10.63% , however despite a consistent track record of dividend pay-out, a substantial fall in the stock price over the past one year could also be a reason for such a high dividend yield, where its comparable benchmark index FTSE 100's dividend yield was hovering in between 4.4-4.5% respectively.

Bakkavor Group PLC

Company overview

The food processing group Bakkavor Group PLC (LSE: BAKK) is headquartered in London, the UK. Its area of operation is concentrated on producing freshly prepared food in the United States and China. Also, the group has an association with western foodservice business-like Starbucks, KFC and Pizza Hut to supply freshly-cut salads, wraps, sandwiches, soup and other freshly prepared food. Its product segments comprise of bread and bakery, desserts and pastries, dips, dressed salads, dressings, fresh-cut fruit, fresh-cut salads, pizza, pasta and other ready-to-eat meals. On November-03-2017, shares of the company got listed on the main market of the London Stock Exchange for trading. The Baupost Group LLC, Aberforth Partners LLP, T. Rowe Price International Ltd., Woodford Investment Management Ltd., Investec Asset Management Ltd. and Hargreave Hale Ltd. are some of the major institutional investors in the company. (Source: TR).

Recently, in June 2019, the group notified that stock exchange regarding the closure of acquisition of Blueberry foods, which was previously announced on May 2019.

Trading Update

As on May 23, 2019, the company released its trading update for the period started from December 30, 2018 to May 23, 2019. The group reported that demand for the company's product was strong in its international markets, and the company has several long-term growth opportunities available in the United States and China. Also, despite a challenging condition in the United Kingdom, management is confident that their strategies and expertise will enable the company to capitalise on future growth opportunities.

The company also reported that subdued consumer confidence and inflationary pressures continued in 2019; however, trading during the period under consideration was in line with the management's expectations.

Stock Performance and Analysis

1-Year Daily price chart (as on August 19, 2019), before the market close. (Source: Thomson Reuters)

While writing (before the market close, at 01:39 PM GMT), shares of the BAKK was quoting at GBX 98.2 and declined 4.20 points or 4.09 per cent against the previous day’s closing price level. In the year-ago period, stock has registered a 52-weeks high price of GBX 191.2 and a 52-week low price of GBX 91.5 and at the current trading level as quoted in the price chart, shares were trading approximately 48 per cent below the 52-week high price level and approximately 7.5 per cent above the 52-week low price level. Also, at the current level, the stock was trading below its 10-day, 30-day, 60-day and 200-day simple moving average prices. The outstanding market capitalisation of the company stood at £567.84mn, and the dividend yield of the company stood at 6.43%. However, a steep plunge in the stock price over the past one year could be a reason for the high dividend yield.

Market Ratios

The LTM Price-to-Earnings (PE) ratio of the company stood at 8.89x, whereas industry LTM PE ratio stood at 29.1x, the Price-to-Sales (P/Sales) ratio of the company stood at 0.32x, against the industry average of 1.68x, and the LTM Price-to-Book (P/BV) ratio of the food processing group stood at 1.04x as compared to the industry average LTM P/BV ratio stood at 3.37x. Therefore, the above-discussed market ratios of the company indicate that shares of the BAKK were quoting at a discounted price against the industry peers.

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