Scandinavian Tobacco: Business Update

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Background

Scandinavian Tobacco Group (STG) is the world’s 11th largest publicly traded tobacco company by revenue. STG became a pure-play cigar & pipe tobacco manufacturer, following the acquisition of its cigarette & snus business (“House of Prince”) by BAT in 2008. With operations mainly in Europe & the USA, STG owns well-known brands like Macanudo, La Gloria Cubana, Panter, Signature, La Paz, Café Crème, Cohiba, Partagas and Captain Black. Since 2022, STG is exploring opportunities to enter the Next Generations Products (NGP) category in order to complement its core cigar & pipe tobacco range (portfolio diversification) and to re-ignite revenue growth (“Growth Enablers”).

XQS launch in the UK: April 2024

STG had announced its plan to roll-out of XQS nicotine pouches to additional markets in 2024 as part of its “Growth Enabler” initiatives. In line with this announcement, STG will launch XQS in May 2024 in the UK – the largest nicotine pouch market in Europe, after Scandinavia, accounting for close to 10% of the global category turnover. XQS will be available in four varieties & strengths (Tropical – 8mg, Blueberry Mint – 8mg, Cool Ice – 9.6mg, Arctic Freeze – 11.2mg) and with a recommended RSP of £5.5 (for a can of 20 pouches).

STG claims that XQS pouches are uniquely smaller to ensure a comfortable fit under the lip, release a long-lasting burst and come in fully recyclable packaging. Recall that, in May 2023, STG acquired (substantially) all assets of XQS – a company active in smoke-free products (nicotine pouches), primarily in Sweden. Since the acquisition, STG’s commercial support has turned XQS into the fastest-growing nicotine pouch brand in Sweden – more than doubling in market share to become a top-five brand in the country.

STG had previously test-marketed STRÖM (its own non-tobacco, nicotine pouches) in 250 c-stores in Manchester between Oct 2022 and March 20231.

!act (a non-tobacco, non-nicotine pouches launched in Denmark in 2023)

Update on the share buy-back program: Feb 2024

Since the initiation of the new kr.850Mn share buy-back program in mid-Nov 2023, STG repurchased 1.43Mn shares at an average price of kr120.5 (total transaction value: kr172.4Mn; ~20% of the program completed). STG shares are up +17.7% since the onset of the new program (last close: kr127.1).

Following the latest transactions, STG owns a total of 1.8Mn shares, corresponding to 2.08% of the total share capital (versus 0.44% at the beginning of the program). The share buy-back program will run until February 28, 2025 unless terminated earlier and STG is authorized to acquire up to 10% of the share capital.

Capital Markets Day – 20232

STG underlines “Moderation & Avoidance (of Smoking)” as a global trend: consumers not willing to compromise on the comforting indulgences while looking for (better) alternatives. STG is planning to capitalize on this trend by launching XQS nicotine pouches in ~10 markets in 2024.

STG’s NGP portfolio has less than 1% weight in total net sales and currently includes 4 different products in 4 countries: nicotine pouches in Sweden and UK, energy pouches (no tobacco & no nicotine) in Denmark and hemp product in the US. In addition to the organic growth aspired, STG’s strategic screening (for M&A opportunities to grow/strengthen its brand portfolio) now includes NGPs (white pouches: no tobacco, with or without nicotine).

Share buy-back program

The new kr.850Mn share buy-back program will start on November 13, 2023 and run until February 28, 2025 unless terminated earlier3. STG currently holds a total of ~382k of own shares (0.44% of share capital) and is authorized to acquire up to 10% of the share capital (i.e. 8.7Mn shares). Based on the last closing price (kr.109.3), new share buy-back amount corresponds to ~7.8Mn shares – or, roughly 9% of the share capital.

STG appointed Nordea Bank as the lead manager for the buy-back program. The maximum number of shares that may be purchased on each business day will not exceed 25% of the average daily trading volume over the last 20 trading days.

Two major shareholders, Chr. Augustinus Fabrikker Aktieselskab (27.3%) and C.W. Obel A/S (12.6%), will maintain their long-term ownership share of 25%-30% and 10%-15%, respectively – thereby, participating in the share buy-back program on a pro-rata basis.

NGP Initiatives

STG is actively exploring the opportunities in NGP/RRP and Beyond Nicotine categories. In May 2023, STG acquired (substantially) all assets of XQS – a company active in smoke-free products (nicotine pouches), primarily in Sweden. In 2022, XQS reported kr50Mn net sales (with a low single-digit EBITDA margin) and 3Mn cans sales volume. Moreover, in April 2023, STG launched !act, a caffeine pouch product without tobacco/nicotine, in Denmark. STG considers roll-out of XQS and !act to additional markets.

However, STG also notes that they are “assessing whether their presence in the NGPs is viable and profitable in the mid- to long-term”.

References:

  1. STG to launch XQS nicotine pouches – Better Retailing ↩︎
  2. https://www.st-group.com/investor/capital-markets-day-2023/ ↩︎
  3. Scandinavian Tobacco Group A/S: Initiation of new share (globenewswire.com) ↩︎

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