Where next for the Imperial Brands share price after falling 45% in two years?

Over the last two years, the Imperial Brands share price has nearly halved in value, with the last 12 months posing a significant challenge due to a tough trading environment for vaping products.

In 2017, Imperial Brands stock was trading at over £31 a share, but has since fallen by 45% to trade at £17.05 as of 12:00 GMT on Thursday.

‘2019 has been a challenging year with results below our expectations due to tough trading in Next Generation Products (NGP). We are implementing actions to drive a stronger performance in the coming year,’ Imperial Brands chief executive officer (CEO) Alison Cooper said in the company’s preliminary results.

‘Our resilient tobacco value creation model continues to produce high margin sales growth and is well-placed to deliver sustained profitable growth in the years ahead.’

Vaping and e-cigarette revenues up 50%

The tobacco industry has invested heavily in NGP products like e-cigarettes as a method of offsetting declining demand for traditional tobacco products.

But with the recent consumer and regulatory backlash brought about by a series of vaping-related illnesses that have claimed the lives of 11 people in the US, the industry is likely to see e-cigarette sales slump.

However, despite the headwinds, NGP revenues still grew by around 50%, though this is well below the level Imperial Brands expected to deliver, the company said.

‘Our delivery was also impacted by an increasingly competitive environment and regulatory uncertainty in the USA,’ Cooper said. ‘Growth in Europe was also slower, despite achieving leading retail shares in several markets.’

Looking ahead, Imperial Brands assured investors that it has learnt from the setbacks it suffered this year and will reset its NGP investment plans accordingly for 2020 - prioritising the markets and categories with the highest potential for sustainable, profitable growth.

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Analysts upbeat about Imperial Brands’ share price

Imperial Brands challenging trading environment prompted several banks to downgrade their target price for the stock in November. But many remain positive about the company and its chances of bouncing back.

Credit Suisse is the most optimistic, reiterating its ‘outperform’ rating and issuing a target price of £30 a share, while UBS reaffirmed its ‘neutral’ rating and slashed its price target to £17.90, down from £19.

Based on the Imperial Brands trading at £17.05, the two banks believe the stock has a potential upside of between 4.9% and 75%.

However, the most attractive quality that Imperial Brands boasts is its 12% dividend yield, with the tobacco company returning surplus cash to shareholders via share buybacks.

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