Essity: A Hygiene And Health Powerhouse Is Spun-Off

Jun. 19, 2017 12:24 PM ETEssity AB (publ) (ESSYY)SVKBF5 Comments
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  • Swedish company Svenka Cellulosa Aktiebolget or SCA spun-off their hygiene and health business under the new name Essity. The new spin-off began trading June 15th.
  • Although not confirmed by the Company, a group of private equity buyers reportedly tried to buy Essity for $22 billion earlier this year.
  • Expect this excellent business to command a premium multiple.

A hygiene and health giant hiding as a forest products company

Sweden's Svenska Cellulosa Aktiebolaget or SCA dates back to 1929 as a holding company for ten forestry businesses. Over the proceeding decades, SCA began acquiring various hygiene businesses although they remain the largest private land owner of forest land in Europe holding roughly 2.6 million hectares (6.4 million acres). Separating these two businesses made sense and hopefully will allow the true value of each to be realized.

How does Essity look going forward?

In 2016, Essity (OTC:ESSYY) accounted for 86% ($11.5 billion) of SCA's total revenue so while SCA was originally founded as a forest products company, in reality, it was a health and hygiene business and had been for many years. It earned around $480 million and generated $790 million in owner earnings last year.

The Company's reach extends into roughly 150 countries and is recognizable under names like TENA (diapers) and TORK (toilet paper) among others. Simply put, it has a very large presence in the tissue and diaper market globally. They are the biggest seller of tissue in Europe and the largest and fourth largest seller of adult and baby diapers in the world. While these businesses certainly aren't glamorous, they have excellent long-term economics and are entrenched in their respective markets.

Make no mistake about it though, these are competitive industries dominated by Procter and Gamble, Johnson and Johnson, Kimberly-Clark, Unicharm, Ontex, Reckitt Benckiser, and Essity. Any smaller players in the industry are simply bought up by one of the big boys.

The chart below shows Essity's market position in each of their business segments:

Essity market positions 2016 Worldwide Europe North America Latin America Asia
Incontinence care 1 1 4 1 3
Baby diapers 4 2 - 6 6
Feminine care

This article was written by

Free Cash Flow 50 profile picture
Ex hedge fund analyst. I just try to take advantage of discrepancies between price and value.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in ESSYY over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I will be a buyer at the right price for the Swedish listing as the OTC version will likely have very little volume for some time.

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