Panmure Gordon has retained its 'buy' rating and 2,900p target price cigarette and tobacco group Imperial Tobacco but has raised some concerns after the company noted challenging conditions in some markets in the first quarter.

"The interim management statement highlights in our view the need for Imperial to deliver growth outside its core European markets, of which there seems to be some evidence, particularly in the Rest of World," the broker said on Wednesday.

"We remain attracted to Imperial on its valuation; however in order for the discount to its peers to narrow we believe that delivery of its organic strategy needs to accelerate."

Imperial said that tobacco net revenues rose over 2.0% in the three months to December 31st, with stick equivalent volumes down 1.0%.

Panmure said: "The outrun was slightly below our expectations in terms of both net revenue and volumes predominantly due to challenging market conditions in the EU and Russia where conditions since the period end have worsened."

Nevertheless, the company's admission that first-half adjusted operating profits would decline was expected so the broker has retained its full-year forecasts.

Despite the first-quarter miss, Panmure kept its 'buy' rating, saying that Imperial's 22% discount to the international sector (on a price-to-earnings basis) is "too large given its attractive cash generation".

Shares were down 4.38% at 2,358p by 10:24 on Wednesday.

BC

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