Citi stays at 'buy' on Imperial Brands, says share price drop was an overreaction

Analysts at Citi reiterated their 'buy' recommendation for shares of Imperial Brands despite what they conceded was a "disappointing" set of results.

For Adam Spielman, Ravi Sharma and Anna Frontani, the stock market overreacted to the figures and, changing hands on less than eight times' his estimates for calendar year 2019 profits, the shares were "too cheap".

Nevertheless, they cut their forecasts for the company's sales of next generation products in fiscal years 2019 and 2020 to £350m and £480m, respectively.

The expected organic rates of growth in Imperial's sales also came down for those two years, to 3.2% and 2.9%m although Citi was "confident" that they would improve.

On the other hand, the company's credibility had taken a knock and would take time to recover, the broker said.

"Clearly we’re disappointed by the share price since our upgrade, but the basic argument remains: Imperial is in a better place than it used to be, and as such we think the shares are too cheap.

"That said, we think the company’s credibility is reduced and it’s likely to take several quarters to recover. We can’t see a near-term catalyst."