Essity Earnings: Solid Progress on Restoring Profitability

No-moat Essity delivered solid third-quarter results, including a substantial sequential improvement in EBITA margin to 12.2% from 10.7%. This is the fourth consecutive quarter of margin improvement, with Essity well on track to reach pre-inflation margin levels and even surpass them as it leaves behind the peaks in input cost inflation and continues to engage in methodical portfolio management. Organic sales growth in the quarter tracked our forecast, but net sales continued to benefit from a significant currency tailwind as a result of the weak Swedish krona. Incorporating the third-quarter results into our model and increasing our 2023 adjusted operating margin forecast to 11.2% from 10.6% leads us to increase our fair value estimate to SEK 280 per share from SEK 260.