RBC upgrades Imperial Brands, says selloff is a buying opportunity

RBC Capital Markets upgraded Imperial Brands to 'outperform' from 'sector perform' on Monday, lifting the price target to 3,600p from 3,500p.

It said the stock's 20% underperformance year-to-date means the upside implied by the average consensus price target is the highest it's seen it over the last five years, throwing up "an excellent buying opportunity".

The bank said worries about Imperial’s ability to hit its medium-term target of organic revenue growth of 1-4% go a long way in explaining its weak share performance YTD, with the US FDA announcement on 28 July providing an extra leg down.

The stock sold off in July, in line with its peers, on news of the FDA's plans to reduce nicotine levels in cigarettes to non-addictive levels. RBC said this was symptomatic of "the market seeing everything as disproportionately negative for the company".

RBC said that while Imperial's market share in its key markets is up there with competitors, its portfolio is too fragmented, meaning that low penetration of its growth brands has been a substantial drag on organic growth.

The bank added that Imperial is doing the right things to fix its top line - it pointed to brand migration, SKU rationalisation and increased investments behind growth brands - but the share price is not giving any credit for it.

At 1040 BST, the shares were up 0.3% to 3,182.50p.