- We think that the Essity run-up is in total contrast to fundamental commodity trends that will compress Essity's margin.
- Essity is remarkably exposed to this negative commodity trend due to lacking vertical integration, after spinning off its forests, and due to end-market exposures.
- Pulp prices, the main input, have rallied significantly due to durable supply-side forces that will not go away quickly, and will be further buoyed by the demand-side upon reopening.
- Topline price offsets, which are tentative to begin with, will not be enough to counteract higher input costs as the intensity of pulp inputs for consumer tissue is very high.
- We use a simulation to show that on average, the downside is quite substantial, and with earnings season right around the corner there is a catalyst to viably go short.
For further details see:
Essity Institutional Coverage Is Outdated, With Severe Increases In Input Costs Not Reflected In The Current Price