Essity Earnings: Record EBITA Margin Will Be Hard to Match in Coming Quarters

No-moat Essity reported a record EBITA margin of 14.7% in the second quarter of 2024, up 220 basis points year over year and up 70 basis points compared with the first quarter. This was primarily driven by lower energy and raw material costs as well as a positive volume and portfolio mix impact. The sequential profitability improvement trend of recent quarters is expected to reverse in the second half of the year given that pulp prices are on the rise, once again approaching a peak historical level. This should result in margin pressure in the second half of the year, especially given Essity's usual time lag in passing through cost inflation to customers, which until now has averaged about two quarters. Given this, we don't expect to make a material change to our fair value estimate of SEK 300 after incorporating the strong first-half delivery. The stock was trading around 5% higher at the time of writing, leaving shares relatively fairly valued.