Swedish Match: Cigars Spin-Off And FDA E-Vapor Action Help Low-Teens Return
(Preview) Company Update (SWMA SS) (Buy)
Summary
Recent news on the U.S. Cigars spin-off and the FDA acting against e-vapor are both positive for our investment case.
The U.S. Cigars business has resilience and strong growth, and should have solid valuation multiples and be able to borrow at low rates.
Comparable listed companies and transactions have EV / EBIT multples of 13-14x, but we believe the U.S. Cigars deserves a higher multiple.
The new Swedish Match should also get a higher multiple. Overall, we believe the separation will increase its per-share value by 5%.
With shares at SEK 81.20, we expect a total return of 54% (14.5% annualized) by 2024 year end. The Dividend Yield is 1.8%. Buy.
Introduction
We review our investment case on Swedish Match AB ("SWMA") after recent news on spinning off its U.S. Cigars business and the FDA acting against e-vapor through the Premarket Tobacco Application process.
We initiated our Buy rating on SWMA in September 2020, and have reiterated it regularly since. In the year since our initiation…