ESSITY B: Margin And Cost Savings Progress Will Support Upside Potential

Analysts have trimmed their fair value estimate for Essity to SEK 325 from SEK 330, reflecting a slightly higher assumed discount rate, even as they factor in marginally stronger long term revenue growth, improved profit margins, and a modestly lower future P E multiple following recent Street target revisions.

Analyst Commentary

Recent Street research reflects a more constructive stance on Essity's medium term prospects, with bullish analysts incrementally lifting price targets and refining their models following the Q3 report. While headline target changes appear modest, the direction of travel remains broadly positive, underpinned by confidence in execution and margin sustainability.

Even JPMorgan's recent trim to SEK 255 from SEK 270, while cautious in headline terms, still implies upside from current trading levels and acknowledges Essity's improving profitability profile. The combination of upward and only modestly downward target revisions supports the view that the risk reward balance is gradually tilting in Essity's favor.

Bullish Takeaways

• Bullish analysts see the post Q3 model update as validating Essity's improved margin trajectory, supporting higher fair value estimates despite a more conservative discount rate environment.
• The incremental price target increase to SEK 267, though small, signals rising confidence that Essity can deliver on cost efficiencies and pricing, which in turn underpins a stronger earnings base.
• Consensus targets, even where slightly reduced such as JPMorgan's move to SEK 255, continue to sit above the current share price, indicating that the market may not yet fully reflect Essity's margin and cash flow improvement potential.
• Higher long term revenue growth assumptions embedded in revised models point to growing conviction that Essity can sustain volume and mix driven growth, supporting a gradual re rating over time.

What's in the News

• Essity announces a new organizational structure with four business areas: Health and Medical, Personal Care, Consumer Tissue, and Professional Hygiene, aiming to decentralize decisions and strengthen end to end accountability across product categories (Key Developments).
• The company launches a cost savings program targeting approximately SEK 1bn in annual savings by the end of 2026, primarily from sales and administrative expenses, with most of the savings to be reinvested in profitable volume growth (Key Developments).
• Essity brand TENA Men becomes a Proud Partner of the Toronto Raptors, using the NBA platform to normalize conversations about male incontinence and promote men's health, confidence, and active living (Key Developments).
• Essity brand JOBST enters a strategic partnership with the Toronto Raptors to promote active lifestyles and confidence for people with venous or lymphatic conditions, including in arena activations and digital campaigns highlighting that not all armour is made of steel (Key Developments).

Valuation Changes

• The fair value estimate has been reduced slightly to SEK 325 from SEK 330, reflecting a modestly more conservative valuation despite improved fundamentals.
• The discount rate has risen slightly to 5.07 percent from 4.92 percent, increasing the required return applied in the discounted cash flow assessment.
• Revenue growth has been revised up moderately to about 2.41 percent from 2.06 percent, indicating higher expectations for long term top line expansion.
• The net profit margin has increased marginally to about 10.32 percent from 10.23 percent, signaling a modest improvement in anticipated profitability.
• The future P/E multiple has fallen slightly to about 15.75 times from 16.18 times, implying a more cautious stance on valuation multiples applied to future earnings.