Swedish Match: Q3 Nicotine Pouch Strength Hidden By Post-COVID Weakness In Older Products

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

Summary

• Swedish Match stock has lost 7.9% in 4 days since Q3 2021 results, after disappointing group EBIT and U.S. Smokefree sales figures.

• ZYN nicotine pouches grew U.S. volume by 8.7% since Q2 and kept a 64% category share; but investors fear this was done with discounts.

• Instead, we believe weak U.S. Smokefree sales and EBIT were due to older products like moist snuff losing their volume boost from COVID.

• Weak U.S. Cigars EBIT was likewise due to a tough pandemic-year comparable and COVID-related external supply chain issues.

• Swedish Match's growth engine is intact. With shares at SEK 74.58, we expect a total return of 69% (18.7% annualized) by 2024. Buy.

Introduction

We review our investment case on Swedish Match (referred here as "SWMA") after Q3 2021 results were released last Wednesday (October 27). Investors have reacted negatively, with SWMA shares falling 4.9% on the day of the results and having now fallen by 7.9% over 4 days.

We initiated our Buy rating on SWMA in September 2020.…