Bank of America has upgraded Imperial Brands PLC (LON:IMB) to a "buy" rating from "neutral," saying recent investor concern over the tobacco maker's earnings outlook is overdone. The broker also increased its price target to 3,200 pence from 2,675 pence, a level it says implies roughly 17% upside from current market prices.
The market reacted modestly to the call: Imperial Brands shares rose 0.6% to GBP 2,689 in London trading on Tuesday, outpacing the broader FTSE 100, which was down 0.7% in the same session.
BofA said investor anxiety has centered on a potential slowdown in fiscal 2026 earnings growth after developments in Australia, where changes to excise and stepped-up enforcement have pressured industry volumes. The bank cautioned that these fears have been overstated because Australia contributes only about 4% of group EBIT, limiting the overall impact on the company’s earnings base.
According to BofA, stronger pricing and gains in market share should more than offset any near-term weakness arising from Australian volume pressures. The broker expects Australia to return to a positive earnings contribution from fiscal 2027.
Outside of Australia, BofA pointed to continued resilience in pricing across Imperial's combustible tobacco portfolio and said growth in next-generation products remains supportive to the group's outlook. The bank further noted that foreign exchange could become a tailwind beginning in the second half of 2027 if prevailing currency trends persist.
Valuation was another factor in the upgrade. BofA observed that Imperial trades at an undemanding multiple relative to peers despite the company delivering a sustainable 3%-5% EBIT growth profile. The broker suggested this makes the stock an attractive entry point ahead of Imperial's fiscal 2026 results, due later this year.
Context and market implications
The upgrade highlights several themes for investors: the limited earnings exposure to a single regional market, the importance of pricing power in combustible tobacco, emerging contributions from next-generation products and sensitivity to currency movements. These elements underpin BofA's view that current market concerns have moved too far given the company's expected earnings trajectory and valuation.
What to watch next
- Imperial's fiscal 2026 results later this year, which are the immediate catalyst referenced by BofA.
- Any further developments in Australian excise policy or enforcement that could affect industry volumes.
- Currency movements leading into the second half of 2027, which BofA says could shift FX from a headwind to a tailwind.