Swedish Match: Q2 Showed Standalone Potential, But No Clear Path To Realize It

(Preview) Company Update (SWMA SS) (Neutral)

Summary

• Swedish Match shares have risen above the SEK 106 Philip Morris offer price after the company released Q2 results on Friday.

• Q2 results showed Swedish Match's standalone potential; sales grew 11% in local currencies, despite supply chain disruptions in cigars.

• ZYN nicotine pouch sales in the U.S. continued its double-digit sequential volume growth, and dominated its category with a 64.9% share.

• Elliott Management's rumored involvement may provide a route for shareholders to get paid more, but is uncertain at this point.

• At SEK 106.15, shares have a 27.0x P/E and a 1.8% Dividend Yield. On balance, we see better risk/reward elsewhere. Hold.

Introduction

Swedish Match AB ("SWMA") released Q2 2022 results on Friday (July 22). SWMA’s share price has been flattish (up 0.1%) since, and currently stand at SEK 106.15, slightly above the SEK 106 offer from Philip Morris in May that is being recommended by SWMA’s Board.

We downgraded our rating on SWMA from Buy to Hold in May following the offer…