Imperial Brands: A Leadership-Led Value Opportunity in Next-Gen Nicotine

The recent 6.3% share price drop of Imperial Brands (LON:IMB) following its first-half 2025 results and CEO succession announcement masks a compelling value opportunity. Investors have overreacted to near-term headwinds—most notably foreign exchange (FX) pressures and transitional costs in its Next Generation Products (NGP) division—while overlooking the company’s structural advantages. With a disciplined capital allocation strategy, accelerating NGP momentum, and a seamless leadership transition, Imperial is positioned to capitalize on a secular shift in nicotine consumption. This dip presents a rare chance to buy a resilient, dividend-rich business at a discounted valuation.

The Catalyst: Leadership Transition with Continuity

The market’s anxiety over CEO Stefan Bomhard’s retirement on October 1, 2025, is misplaced. Lukas Paravicini, the incoming CEO, brings deep institutional knowledge, having served as CFO since 2020. His promotion is a testament to the company’s strength in succession planning. Crucially, Bomhard will remain on the board until December 2026, ensuring continuity during the transition. This dual-phase handover minimizes operational disruption and aligns with the company’s “challenger approach” to outpace competitors in NGP markets.

NGP Growth: A 15% Revenue Surge, Not a Sideshow

The company’s NGP segment delivered a 15.4% revenue rise in H1 2025, driven by its Zone brand in the U.S. and market share gains across modern oral, vapor, and heated tobacco categories. While NGP still reports losses (down 14% to £43 million), this is a temporary drag as the business scales. The low-single-digit tobacco revenue growth and high-single-digit EPS growth targets through 2030 are achievable because NGP’s margin expansion will offset legacy declines.

FX-Driven Declines: A Temporary Headwind, Not a Trend

The reported 3.1% revenue decline and 2.5% drop in operating profit are misleading when stripped of FX effects. Constant currency metrics show Tobacco & NGP net revenue grew 0.7%, while adjusted operating profit rose 1.8%. The pound’s strength against currencies in emerging markets—where Imperial holds significant market share—distorted these figures. A potential weakening of sterling or stabilization in key regions could rapidly reverse this drag.

Dividend Hike and Buybacks: A Signal of Confidence

The 78.5% interim dividend hike to 80.16 pence per share, paired with a £1.25 billion buyback, underscores management’s confidence in Imperial’s financial resilience. The dividend increase reflects a 4.5% underlying growth and a rephased payout structure (four equal installments), reducing volatility. With free cash flow at £2.4 billion over 12 months, the company has ample liquidity to fund NGP innovation while rewarding shareholders.

Why Now? The 2030 Roadmap and Shareholder Value

Imperial’s medium-term goals—low-single-digit tobacco revenue growth, mid-single-digit adjusted operating profit growth, and high-single-digit EPS growth—are within reach. NGP’s 3.2% constant currency revenue growth in H1 2025 is a harbinger of things to come. As regulators globalize nicotine policies and consumers shift to reduced-risk products, Imperial’s portfolio—spanning combustible, heated, and oral nicotine—positions it to dominate.

Valuation: A Discounted Dividend Machine

At a current yield of 6.5% (post-dividend hike), Imperial trades at a 23% discount to its five-year average P/E ratio. This undervaluation ignores its £2.4 billion free cash flow engine and the 15.4% NGP revenue growth that will increasingly contribute to profitability. The shares now reflect a worst-case scenario for FX and NGP losses, making them a compelling buy.

Risks? Yes, but Manageable

• FX Volatility: A prolonged sterling rally could pressure results, but Imperial’s geographic diversification buffers this risk.
• Regulatory Headwinds: Stricter nicotine regulations in key markets could slow NGP adoption, though Imperial’s compliance record and product innovation mitigate this.

Conclusion: Buy the Dip, Own the Transition

Imperial Brands’ 6.3% share price drop is a gift for investors with a 3–5 year horizon. The leadership transition is seamless, NGP’s growth is accelerating, and the dividend policy ensures returns even as the business evolves. With a £14.6 billion revenue base, fortress balance sheet, and clear path to 2030 targets, this is a rare opportunity to own a nicotine leader at a cyclical low.

Act now: The re-rating to Imperial’s NGP future is inevitable.