Fundamental take‑away
The interim report shows that Scandinavian Tobacco Group (STG) posted a strong topline— revenues up 8% YoY—and a markedly higher EBITDA margin (12.4% versus 9.7% in the prior period). The company generated €210 million of free cash flow (FCF), up €45 million from the previous interim statement, and reduced net‑debt to €120 million after a €30 million bond repayment. With a robust FCF surplus and a healthier balance sheet, management now has the leeway to raise the interim dividend or at least keep the payout ratio steady while still funding its growth pipeline (new product roll‑outs in the US and Scandinavia). The board is likely to target a payout ratio of 50‑55% of net earnings, translating into a ~5–6% quarterly increase in the dividend per share versus the prior level.
Cash‑flow outlook
The cash‑flow forecast for FY2025/26 has been upgraded by 10% on the back of the stronger operating performance, implying annual FCF of €260‑280 million. This provides ample headroom for:
- Share‑rebuy programmes (the company announced a €50 million tender offer in Q3);
- Capex on capacity expansion—still limited to €30‑40 million per year, well within the cash‑generation envelope;
- Liquidity buffer—the cash‑conversion cycle has been cut by 5 days, further easing working‑capital pressure.
Trading implications
- Technical: The stock is currently holding above the 50‑day EMA (€38.5) and has just broken a well‑tested resistance at €39.0 on volume, signaling bullish momentum. A retest of the 55‑day EMA could act as a pull‑back point, offering a lower‑risk entry.
- Actionable: For risk‑averse investors, the improved dividend and cash‑flow outlook justify a long‑position at current levels (≈ €39‑40) with a modest stop‑loss at €36. Momentum‑oriented traders could add to positions on a dip to the 50‑day EMA, targeting the next resistance at €42‑43. The combination of a higher dividend yield and upside potential makes the stock attractive on both a total‑return and fundamental basis.