Regulatory Risks And Rising Costs Will Squeeze Margins

Key Takeaways

• Heightened regulatory and public health pressures threaten core market stability, risking long-term revenue and profitability erosion.
  
• Inefficient expansion and rising competition in new markets may compress margins and undermine sustainable growth.
  
• Strong execution in high-growth nicotine pouch markets, operational efficiency, and supportive regulations position Haypp Group for sustained revenue expansion and market share gains.

Catalysts

Operates as an online retailer of tobacco-free nicotine pouches and snus products in Sweden, Norway, the rest of Europe, and the United States.

• Regulatory risks are mounting as the EU's draft tax proposal on nicotine products-including pouches-signals a growing trend toward more stringent taxation and potential eventual restrictions, which could materially limit Haypp Group's addressable market and suppress revenue growth over the long term.
  
• Societal and governmental focus on public health is intensifying, raising the possibility of future measures to curb overall nicotine consumption-such as broader flavor bans, marketing restrictions, or outright category stigmatization-that may trigger persistent volume declines and erode Haypp's future revenue base.
  
• Although the company is expanding its emerging and U.S. segments, Haypp remains heavily dependent on a small number of core European markets, exposing it to substantial single-country regulatory changes or tax shocks, which could cause sharp drops in net margins and long-term profits.
  
• Increased investment in the U.S. market and other emerging geographies has driven overheads higher, but with little evidence that these investments are delivering efficient customer acquisition at scale, there is heightened risk of operating margin compression and deteriorating earnings as market competition intensifies.
  
• The ongoing emergence of alternative cessation or non-nicotine wellness products may permanently reduce the appeal of Haypp's offerings, reducing medium
• to long-term market demand and undermining the sustainability of top-line growth and margin expansion.

Haypp Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Haypp Group compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Haypp Group's revenue will grow by 19.3% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 1.9% today to 4.4% in 3 years time.
• The bearish analysts expect earnings to reach SEK 277.9 million (and earnings per share of SEK 8.96) by about August 2028, up from SEK 71.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 12.8x on those 2028 earnings, down from 60.6x today. This future PE is lower than the current PE for the SE Specialty Retail industry at 23.2x.
• Analysts expect the number of shares outstanding to grow by 3.51% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.18%, as per the Simply Wall St company report.

Haypp Group Future Earnings Per Share Growth

Risks

• Strong long-term growth in Haypp Group's nicotine pouch sales, including 23 percent year-over-year volume growth and ongoing robust category expansion in both the US and European markets, supports continued revenue growth over the long term.
  
• The company has achieved a notable and steadily increasing gross margin, rising from 14 percent to 19 percent year-over-year, indicating improved operational efficiency and supporting the potential for enhanced net margins and future earnings growth.
  
• Stable and even favorable regulatory developments in key markets, such as the US and EU, where online sales are allowed and the legal landscape appears supportive, reduce the risk of market contraction and suggest a positive long-term outlook for the company's addressable market and revenue prospects.
  
• Significant investments in US operations-including expanded team capabilities, improved retention programs, and successful early results from same-day and next-day delivery pilots-signal that Haypp Group is positioning itself to capture market share in a rapidly growing market, which could propel revenue and earnings higher as these initiatives scale.
  
• The company maintains a strong balance sheet with low leverage and continues to allocate capital toward high-growth emerging segments, which are nearly tripling revenues year-over-year; this strength supports sustained investment, revenue growth, and improved earnings power over the long term.

Valuation

• The assumed bearish price target for Haypp Group is SEK90.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Haypp Group's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SEK220.0, and the most bearish reporting a price target of just SEK90.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be SEK6.4 billion, earnings will come to SEK277.9 million, and it would be trading on a PE ratio of 12.8x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of SEK140.8, the bearish analyst price target of SEK90.0 is 56.4% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.