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Imperial Tobacco, one of the world’s leading tobacco companies, offers significant growth prospects, as well as being one of the most defensive areas in consumer staples , Olivier de La Ferrière, fund manager at KBL Richelieu Gestion, told CNBC.com.
The valuation of Imperial Tobacco , the owner of brands such as Gauloises, Drum, or Davidoff, is trading at discounted levels due to its lack of exposure to emerging markets , de La Ferrière explained.
While 51 percent of competitor British American Tobacco’s net profit comes from emerging markets and 44 percent for peer Philip Morris , emerging markers contributed just 23 percent to Imperial Tobacco's profit in 2011.
“This is what justifies the valuation discount, but it is simplistic, because (Imperial Tobacco) is the leader in the roll-your-own segment, which is interesting due to its strong growth and higher margins than the rest of the sector,” de La Ferrière said.
The company is a strong cash flow generator which offers a potential increase in shareholder return.
The free cash flow payout ratio — the annual dividend per share divided by free cash flow per share — is currently at 75 percent, but could eventually reach 100 percent, de La Ferrière said, thanks to solid dividends and an increase in its buyback program.
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