Friday, 23 January 2015

Imperial Tobacco - Portfolio Sale

IMT has been in my shares portfolio for just over two year. Over the past year or so, it has risen some 30% - well ahead of the FTSE 100 index.

I concluded my last post following the full year results:
"Given the decent share price appreciation over the past year combined with top ups to several of my investment trusts which have significant holdings of IMT, I am reaching a point where I will become too overweight with this share. I will therefore monitor and may sell if the price continues to rise over coming months".

2 yr comparison v FTSE 100
(click to enlarge)
IMT is a significant weighting in many of my income investment trusts - City of London, Temple Bar  and Edinburgh, all of which have been added to in 2014, and Invesco Income which was a new addition in my ISA last Summer.

Of course, these trusts also hold Br. American Tobacco with even larger weightings so the combined effect takes me to a level of income from such holdings that is above my personal comfort zone.

Other aspects which may or may not become problematic are falling revenues and increasing debt. The debt will further be increased to fund the acquisition of the brands from Reynolds later this year.

Mr. Market was kind enough to make an offer today of £30.75 which I was happy to accept. I will also receive a further 89.3p final dividend next month. This will make a total return of just under 40% since purchase.

The sale proceeds have been recycled into a further holding in New City High Yield trust with a yield of 6.6%.

4 comments:

  1. I was thinking of doing exactly the same, New City High Yield is a long term holding of mine. How do you feel about the premium at the moment? I notice it goes ex-dividend at the end of the month as well

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    1. Hello Noiseboy,

      I think this tends to trade at a premium to NAV - or has done for most of the 3 yrs I have held it. The forecast divi for the coming year appears to be 4.31p - an increase of 2.4% on last year and giving a fwd yield of 6.6%.

      One of my PIBS with Nationwide is due to be redeemed shortly so this will act as a replacement in my fixed income sector. I will also be looking at City Merchants at some poit from the same sector.

      Thanks for stopping by.

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  2. Funny, I'm actually thinking of buying IMT - they're expensive but the price is just going up, so I might just take the plunge anyway...

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    1. Hi Weenie,

      Good to hear from you.

      Probably if I did not hold the investment trusts which all hold IMT, I would not be selling. Then again, as you say, given the rising price, they are not such a good deal as they were some time back, sales are in decline for a number of reasons and debt is increasing so lots of aspects to think about.

      Having said that, the yield is still good and the promise of a 10% increase in the coming year may provide support.

      Good luck with whatever you decide!

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