Imperial Brands shows signs of improvement in vape and e-cig performance

There are lingering concerns that the company missed the e-cig train and will struggle to compete with some of the more established vape companies especially in North America

Cigarette maker Imperial Brands PLC (LSE:IMB) shares were boosted by growth in its next-generation products (NGPs) which offset weaker tobacco performance in Europe, although analysts aren`t getting too excited just yet.

First-half NGP revenues are expected to be ahead of last year, largely driven by growth on this side of the Atlantic.

The FTSE 100 company hailed progress in Europe made by these vape and e-cigarettes products, with the reduced losses from NGPs forming a key part of the expected 2% growth in total first-half profit.

Its pilot schemes for Pulze heated tobacco products did well in the Czech Republic and Greece, while an improved consumer marketing proposition was hailed for its Blu vape product in the US.

Tobacco performance across Europe for the maker of Winston cigarettes and Rizla papers was weak, however, although a return to pre-pandemic purchasing patterns was seen towards the latter end of the six months.

Imperial remained upbeat that it will reap the rewards of tobacco price increases in the second half, expressing confidence this will translate to stronger revenue performance.

Its transition away from `traditional` tobacco products to NGPs is coming as global demand for tobacco continues to decline according to the World Health Organisation.

As a result of this shift in the market and Imperial's troubles with its NGP arm – before a strategy rethink was initiated by new chief executive Stefan Bomhard in 2020 – the shares have lost more than 55% of their value over the last five years.

[Key for any tobacco company in today`s world is how they`re going to transition away from the increasingly unpopular classic tobacco products and build out an offering on NGPs," said Matt Britzman, equity analyst at Hargreaves Lansdown.

The vaping and E-Cigarette industry has grown significantly over the last decade with it showing no signs of slowing down.

It was valued at US$18.13bn last year, according to research by GrandViewResearch, and is expected to expand at a compound annual growth rate of 30% over the next eight years.

Imperial essentially started with a clean slate for its NGPs offering last year when Bomhard's new strategy was announced, which leaves some lingering concerns that it missed the proverbial train and will struggle to compete with some of the more established vape and e-cig companies.

Indeed, in the US, which is one of Imperial`s key target sectors, 75% of the vapes and e-cig market is owned by Altria's Juul brand.

With North America dominating the global market, accounting for a 40% share in 2021, Imperial will have to move fast if it is to break Juul`s dominance in the region while also continuing to build a presence elsewhere.

Investors will have to wait until 17 May to find out exactly how well NGPs have done, and Britzman says investors shouldn`t get too excited

[There needs to be some movement on next-generation products soon to start giving markets something to get excited about."

Shares were boosted 3% to 1,668p in afternoon trading today, but when the full half-year results next month allow the smoke to clear we will have a clearer picture on how much progress has been made.