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Imperial Tobacco shares rise despite Spanish cigarette price war

A cigarette price war in Spain will hit Imperial Tobacco‘s revenues this year, but the company’s confidence about the outlook has given a lift to its shares.

In a trading update Imperial said its full year performance was in line with expectations, despite total revenues rising just 2%. The effect of the Spanish price war – which has now been halted – has been offset by strong performances in eastern Europe and Asia-Pacific.

Imperial said recent price rises in Spain – its third biggest market after Britain and Germany – would help make up for a delay in raising prices in the UK. Martin Deboo at Investec said:

According the Spanish tax authorities, [recent price rises] have restored Imperial’s key brand Fortuna to its pre-price war price point of €3.85 per pack. (Market leader Marlboro has also moved back to its pre-price war level of €4.25 per pack).

Shares in Imperial, whose brands include Lambert & Butler, Gauloises and Ducados, have climbed 31p to £21.24. Investec’s Martin Deboo said:

We view Imperial’s fourth quarter update as positive and reassuring relative to expectations. Revenue and volume performance has improved in the quarter against toughening comparisons. The de facto end of the Spain price war is confirmed, although we anticipate no benefit to our 2011 estimated numbers. With the shares weak last week on fourth quarter worries and Imperial that rare beast – a defensive that is cheap relative to historic standards – this feels like a positive for the shares.

In a hold note Dirk Van Vlaanderen at Jefferies said:

It is difficult to judge the real magnitude of the volume decline in the fourth quarter (excluding-Spain and the UK) due to the limited disclosure, but we would estimate it to be between -1% to -2%.

The 2011 consensus is unlikely to change much: the later timing of UK price increases this year has meant that some volume and profit has been pulled into the 2012 fiscal year, but this has been offset by the recent price increases in Spain, which will result in a profit boost due to inventory revaluations within the logistics business. © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds