IMPERIAL BRANDS (IMB) SHARES: 2025 PERFORMANCE IN UK, KEY DRIVERS, MILESTONES AND RISKS —'26 OUTLOOK

How did Imperial Brands perform in the UK during 2025?

Throughout 2025, Imperial Brands PLC (LSE: IMB) delivered a complex but stable performance in the United Kingdom equities market. The Bristol-based FTSE 100 tobacco company, known for brands such as JPS, Rizla, and Blu e-cigarettes, navigated macroeconomic pressures, regulatory developments, and steady consumer trends. Amidst industry disruption, the company managed to offer defensive value to long-term investors.

Imperial’s 2025 share price ranged between £17 and £20, recovering notably from its early 2024 lows around £16.20. This rebound was underpinned by strong dividend performance, tight cost control, and a renewed focus on next-generation products (NGPs). However, it was not without volatility, particularly in Q2 and Q3 when regulatory scrutiny on vaping intensified in the UK and other core markets.

Dividend stability remained attractive

A key pillar of Imperial’s 2025 appeal remained its dividend yield. The company maintained a high payout, distributing approximately 138.1p per share, translating into a yield near 7–8%, positioning it among the top income plays on the FTSE. Investors continued to see this defensive characteristic as both a signal of underlying cash flow strength and management’s commitment to capital returns.

Progress in next-generation products

Imperial recorded incremental growth in its NGP category—especially with vapour and heated tobacco. The company increased its R&D spend in 2025 by an estimated £50 million, signalling extended efforts to diversify away from traditional combustible products. While NGPs accounted for a relatively modest 5% of group revenue, the momentum was encouraging against an intensely competitive backdrop led by BAT, PMI, and JUUL.

Regulatory headwinds and ESG scrutiny

Despite progress, 2025 also reminded investors of industry-wide vulnerabilities, particularly as the UK government pressed ahead with plans to reduce smoking prevalence to 5% or lower by 2030 and scrutinise youth access to vaping products. Bilateral discussions around flavour bans and retail curfews were an overhang in the second half of the year and could evolve into legislation in 2026.

On the Environmental, Social, and Governance (ESG) front, Imperial struggled to match peers like BAT in perception. Although it published its First Climate Action Report in early 2025, outlining a net-zero roadmap by 2040, investor uptake remained cautious, reflecting broader sector scepticism.

Valuation and investor sentiment

Imperial’s shares remained attractively valued at a forward P/E of around 6x, a discount to sector peers and the FTSE 100 average. This reflects both regulatory risk discounting and long-standing concerns about long-term volume declines. Nevertheless, favourable investor sentiment persisted, driven by share buybacks, margin expansion, and steady free cash flow of around £2 billion.

In summary, 2025 was a year of cautious progress for Imperial Brands, balancing shareholder returns with a gradual shift in product mix—all while operating under vigilant regulatory oversight. This sets the stage for a watched 2026.

What shaped Imperial Brands share performance in 2025?

Imperial Brands’ UK performance in 2025 was shaped by a convergence of internal reforms, sector dynamics, global macro factors, and investor demand for defensive yield. These key drivers played a central role:

1. Strong cash generation and disciplined capital allocation

IMB made a concerted effort in 2025 to streamline its operations and drive efficiencies. Free cash flow generation remained robust—roughly £2 billion—underpinned by improving EBIT margins and a tightly controlled cost structure. The management reinstated its £300 million share buyback plan early in the year, boosting investor confidence in the company’s balance sheet stability and earnings visibility.

2. Resilient tobacco demand in mature markets

Despite long-term volume decline trends, Imperial’s premium tobacco products continued to show pricing power in developed economies like the UK, Germany, and Australia. Strategic price hikes helped to offset modest volume erosion. Tobacco overall still represented around 90% of total revenues, underscoring the company’s reliance on this high-margin segment.

3. Regulatory developments and policy changes

Notably, 2025 included several pivotal regulations targeting nicotine consumption in the UK. The government advanced its plans to ban disposable vapes and mandated plain packaging for certain flavoured nicotine products. These changes caused temporary disruptions in youth-oriented vapour segments, a move that Imperial had partially pre-empted by limiting product SKUs and focusing on adult smokers.

Moreover, tobacco excise duty increases provided headwinds, although Imperial’s lobbying efforts helped soften some fiscal proposals.

4. Continued transformation strategy

Imperial’s transformation strategy, launched in 2021, entered a mature execution phase in 2025. Investments in digital supply chain tools, direct-to-consumer (DTC) marketing, and customer analytics yielded operational benefits. This tech-forward pivot deepened consumer insights and enabled more agile market responses, particularly in e-vapour segments.

5. Sector trends and external macroeconomic conditions

UK inflation stabilising below 3% and modest wage growth supported discretionary consumer spending, including within branded tobacco segments. This macro backdrop, coupled with a weak sterling in parts of the year, also lent support to the earnings of international UK-listed companies like Imperial, with over 60% of revenue derived internationally.

Comparatively, peers such as BAT faced more volatility, on account of significant US exposure, which cushioned IMB’s UK share from being dragged down drastically by global sector woes.

6. Investor perception and analyst coverage

Most UK analysts held a cautiously optimistic stance through 2025, with consensus price targets ranging between £19–£21. The general theme among equity research was 'value play with risks'. Investors focused on the balance between generous dividends and limited long-run growth prospects. Consensus EPS estimates were largely exceeded in both H1 and H2 earnings, primarily due to margin control.

Together, these dynamics made IMB shares a stable albeit unspectacular component of UK dividend portfolios, suitable for income-focused and value-aligned strategies.

What should investors watch for in 2026?

As we move into 2026, investors in Imperial Brands will find several catalysts, caution flags, and strategic decisions critical in influencing share price performance. A blend of legislative shifts, ongoing operational restructuring, and product innovation defines the outlook.

1. UK and EU tobacco regulatory evolution

The most prominent risk remains policy tightening, especially under the UK government's broader public health aims. Legislation is expected regarding flavoured e-liquids, disposable vape bans, and stricter retail licensing. Across the EU, Spain and Germany may introduce track-and-trace regulations for heated products. Investors should track:

• Implementation timelines for the disposable vape ban in UK
• Potential excise increases on heated tobacco in the EU
• World Health Organization’s Framework Convention updates on nicotine

These will impact both revenues and compliance costs in 2026.

2. Growth trajectory in next-generation product sales

Investors will likely expect accelerated performance in the NGP segment, which is essential for long-term sustainability. Imperial aims to increase NGP revenue share to at least 10–12% by end-2026. Key milestone updates in quarterly releases will inform sentiment:

• New product pipelines and market launches
• Consumer uptake metrics and brand recall statistics
• Profitability milestones on NGP units

Expansion into Central European markets may offer additional volume and scale opportunities.

3. Execution of cost transformation measures

Imperial has signalled another £150 million cost-saving programme will begin in early 2026, with focus on logistics, procurement, and reduced SKU complexity. Investors will watch:

• Whether operating margins rise beyond 13.5%
• EBITDA stability amid lighter tobacco volumes
• Return on invested capital (ROIC) progression vs targets

These indicators will influence analyst revisions and institutional sentiment.

4. Capital allocation and dividend outlook

Imperial’s strong cash flows may allow continued dividend growth, though expectations are muted. Any upward revision in the dividend or buyback plans could support the share. However, unexpected liabilities (e.g. litigation) or supranational taxes could lead to capex reprioritisation.

Expect ongoing watchfulness from income-focused funds and insurers that dominate IMB’s shareholder register.

5. ESG credibility and ratings improvements

Should Imperial improve its ESG ratings or deliver notable emissions cuts verified by third parties, there could be reweighting considerations for institutional investors. Key areas to monitor:

• Carbon disclosure alignment with TCFD and ISSB standards
• Progress on supply chain traceability
• Corporate governance refinements

While ESG concerns won’t disappear, especially in tobacco, measurable progress could help offset some perception drag.

All told, Imperial Brands enters 2026 with a stable financial base and clear transformation pathways. Shareholders, especially those seeking income and defensive positioning, will be closely observing how the company balances profitability, innovation, and regulation through the year.