Report for quarter 4 and full-year 2025

Essity reported Q4 2025 net sales down 8.2% to SEK 34,695m but delivered stronger profitability with EBITA up 9% to SEK 5,005m and EBITA excl. IAC of SEK 5,117m (margin excl. IAC 14.7%). Full-year net sales fell 4.8% to SEK 138,494m while full-year EBITA was SEK 19,503m and EBITA excl. IAC decreased 4% to SEK 19,572m; profit for the period was SEK 12,718m (vs SEK 21,048m prior) and EPS fell to SEK 18.37. Management highlighted improved ROCE and margins, launched a SEK 3bn buyback, proposed a 6% higher dividend to SEK 8.75 per share, and announced the planned acquisition of Edgewell’s North American feminine care business to strengthen Personal Care growth prospects.

Analysis

Market structure: Essity (ESSITY.ST) is leveraging pricing, marketing and new product launches to expand market share in hygiene categories; Q4 EBITA margin excl. IAC rose to 14.7% and full-year to 14.1% while ROCE reached ~17%, signaling durable pricing power vs. peers. The Edgewell feminine-care acquisition (close expected Q1 2026) is accretive to North American Personal Care scale and will pressure regional competitors’ volumes (e.g., KMB, PG) and trading dynamics for branded retail shelf space over 12–24 months.

Risk assessment: Main tail risks are integration failure or divestiture demands (regulatory), a reversal in pulp/energy cost trends, or a recession-driven private-label share gain; these could compress EBITA margin by 200–400 bps and drop EPS >20% within 6–12 months. Short-term market moves will be driven by Q1 2026 acquisition close and clarity on financing/leverage (monitor net debt/EBITDA post-close); immediate-week volatility may spike around the webcast and any new leverage guidance.

Trade implications: Offset modest long exposure to ESSITY.ST with disciplined sizing (2–5% notional), using covered-call overlays to harvest buyback-driven support and buying 6–12 month protective put spreads 10%/25% OTM to cap downside. Relative-value: long ESSITY.ST vs short Kimberly‑Clark (KMB) or Reckitt (RKT.L) to play better margin expansion and European cost leadership; rebalance at acquisition close or every quarter.

Contrarian angle: Consensus underweights execution/integration risk and overweights headline EPS volatility (full-year profit fell from SEK21bn to SEK12.7bn); if Essity executes decentralization and cost saves ~SEK1–2bn within 12 months, upside could be >20% from buyback/dividend-accretive EPS. Conversely, anti-consensus short could pay if regulatory hurdles delay the Edgewell deal >90 days or if pulp costs rebound >15% YoY, eroding margins rapidly.

Key Decisions for Investors

• Establish a 2–3% long position in Essity (ESSITY.ST) within 5 trading days, thesis: sustained margin expansion (14%+) and SEK3bn buyback + dividend SEK8.75 support EPS; target +20% in 12 months, stop-loss −12%.
• If Essity drops 5–8% pre-acquisition, scale into a 5% position; add only upon confirmed close of the Edgewell asset in Q1 2026 (within 7 trading days) to capture expected North American accretion.
• Buy a 6–12 month protective put spread on ESSITY.ST sized to the position (buy 10% OTM put, sell 25% OTM put) to limit downside while keeping cost low; roll if acquisition closes without issues.
• Implement a pair trade: long ESSITY.ST (3%) vs short Kimberly‑Clark (KMB) or Reckitt (RKT.L) (2%) to exploit expected relative margin and market-share gains; reassess at each quarterly report or on material pulp-cost moves (>10% QoQ).
• Sell 3–6 month covered calls 8–10% OTM against core ESSITY.ST exposure to monetize buyback/dividend tailwind; if assigned, accept capture of dividend SEK8.75 as part of total return strategy.