Swedish Match: Strong Smokefree Beneficiary On Sale At 18.6x P/E

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

Summary

• Swedish Match shares have started falling again, despite last week's end of the U.S. "nicotine tax" proposal, its biggest tail risk.

• This is an opportunity to buy one of the stocks benefiting the most from the shift from cigarettes to Reduced Risk Products at just 18.6x P/E.

• Recent news has been positive: peers point to a favourable market; a rising USD adds to EBIT; Omicron is not a threat to Swedish Match.

• The recent correction is just part of the stock's volatility; it went through multiple 15%+ corrections in the last 5 years as it rose 138%.

• With shares at SEK 68.68, we expect a total return of 84% (23.0% annualized) by 2024 year end. The Dividend Yield is 2.2%. Buy.

Introduction

We review our investment case on Swedish Match (referred here as "SWMA") after shares started falling again this week, despite the removal of what was SWMA's biggest tail risk, a proposed U.S. "nicotine tax". The proposal was abandoned late last Thursday (December 9), and SWMA stock first rose 7.8% in t…