Imperial's Focus on Combustibles Limits Growth but Boosts Free Cash Flow Margin

Imperial Brands has positioned itself as a fast follower in next-generation products while strengthening its share in its most important markets. This makes sense, given its relatively smaller size compared with peers like Philip Morris International and British American Tobacco, which leaves it a smaller budget for innovation. Although this means Imperial will be more exposed to cigarettes (we forecast NGP will contribute just 6% of tobacco and NGP net sales in fiscal 2030), it also means that it can maximize its free cash flow generation and returns to shareholders.