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Librarian Capital's Research Library
Swedish Match: Cigars Spin-Off And FDA E-Vapor Action Help Low-Teens Return

Swedish Match: Cigars Spin-Off And FDA E-Vapor Action Help Low-Teens Return

(Preview) Company Update (SWMA SS) (Buy)

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Librarian Capital
Sep 23, 2021
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Librarian Capital's Research Library
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Swedish Match: Cigars Spin-Off And FDA E-Vapor Action Help Low-Teens Return
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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…

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