LONDON  - After years of coughing and spluttering, Imperial Brands stock is finally beginning to catch its breath. The 20 billion pound tobacco company is raising 2 billion pounds through asset sales and has adopted a more flexible dividend policy. Yet the Financial Times reports that some shareholders are losing patience. They might want to pause for a leisurely smoke.

Yes, the current management team has presided over the almost halving of the share price. However, Imperial is doing something. It will soon sell its luxury cigar business - with name brands including Habanos and Montecristo. A new chair is expected in the coming months after Mark Williamson stepped down in February. The share price is up 16% since June’s eight year lows.

Shareholders’ frustration is understandable, but the options for management are limited. The cigar business sale was slow, but hiccups are hard to avoid when unloading a joint venture with the Cuban government. With the cigars going, there are no obviously non-core assets left to sell, and there are few eager buyers of health-damaging tobacco assets.

Tobacco consumption is declining in Imperial’s markets, but electronic cigarettes are a bright spark for the industry. Juul, in which industry rival Altria is an investor, is the vaping leader, but the market is still up for grabs, particularly if the trendier upstart comes under more relative regulatory pressure because of its popularity with youngsters.

As yet, Imperial’s next-generation segment is not setting the not-quite-smoking world on fire. Its annual revenue is just 200 million pounds. Still, it knows the psychology of nicotine addiction and has a strong presence in emerging markets. It could gain market share in a segment that market researcher Nielsen estimates is growing at a 50% annual rate. Imperial’s existing presence could help as new regulations raise the barriers to entry.

While it is important to reward Imperial’s long-suffering investors, eschewing investment in so-called next-generation products would be missing a trick. The board’s July 8 decision to jettison the commitment to growing dividends by 10% every year makes sense. Imperial needs the financial flexibility to invest in vaping and cannabinoids. Shareholders can hold on to see how these efforts pan out.

CONTEXT NEWS

- Four of the largest 30 shareholders in Imperial Brands are dissatisfied with the tobacco company, the Financial Times reported on Aug. 19. They want the 20 billion pound tobacco company to sell some divisions and change the leadership team.

- One of the shareholders said it is pushing the board for faster action on divestments and that the company’s plans to sell its premium cigar business, which includes the Cohiba and Montecristo brands, did not go far enough. Another said the appointment of a new chair, expected in the next couple of months, should “trigger a review of the leadership team”.

- Shares in the London-listed company have fallen 29% since a year ago, and were trading at 21.17 pounds at 0840 GMT on Aug. 20. Imperial is trailing the MSCI World Tobacco Index which fell 20% in the year to July 31.

(Editing by Edward Hadas and Karen Kwok)

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