Impreza

L/S Swedish Equities Pairs Trade

Consumer Defensive / Consumer Cyclical

30/12/2019 Close
Long: ESSITY_B Current Price SEK: 301.80
Short: WESC_AB Current Price SEK: 0.0046

ESSITY / WESC spread Entry Range: 65608.70
ESSITY / WESC spread Hard Stop: 59076.70 (10%)
ESSITY / WESC spread Soft Target: 85374.00 (30%)

BETA hedge
For every SEK 1.00 Long of ESSITY_B
SEK 9.00 Short of WESC_AB

*Build you position in two stages enter with 50% of desired exposure.
*+add too the position on a breakout or at the soft target.
*Hedge your currency exposure, unless you have a view on SEK .
*HIGH RISK trade.

Essity: Consumer Defensive (Manufacture Tissues, Toilet paper & other hygiene products) Strong fundamentals, very defensive and predictable earnings with consistent global demand, outperformed all of its competitors in 2019.
*Market Cap = 212B
*EPS = 14.10

ESSITY_B Consensus Jan 2020 =F1 Jan 2021 =F2
F1 P/E: 20.10x
F2 P/E: 17.60x
F1 Earnings Growth: 22.38%
F2 Earnings Growth: 6.70%
F1 Sales Growth: 2.70%
F2 Sales Growth: 3.00%
F1 PEG: 0.89
F2 PEG: 2.62
Risk: Reflation of the global economy, and solid resolution of political tensions. And therefore a full risk on scenario and defensive stock underperformance.

Wesc: Consumer Cyclical (Trades Apparel & related products, under it brand name WESC) Weak fundamentals, very cyclical and “polluting” as it’s fast low quality fashion. Loss making. In desperate need of a turn around, I feel the business will not attract new talent (As the brand is notoriously NOT cool for millennials and gen z) and isn’t worth turning around as a brand, also no analyst and very hard to find relevant financial information in for the company.
*Market cap = 22M
*EPS = -0.0150
Risk: Merger, acquisition or turnaround. Otherwis I’d be happy to keep this position on for the foreseeable future.

*KEEP YOUR POSITION SIZE SMALL*
This is a risky pairs trade as WESC could get bought out, or turned around and go to infinity, but I’m betting against that.

LONG High quality Swedish Consumer Staple.
SHORT Low quality Swedish Consumer Cyclical.
Jan 02
Trade closed: stop reached: 02/01/2020
LDN: 12:49

Spread trading around Hard Stop Loss.

RISK:REWARD is better now, I'm not closing out yet. As I entered with a half position.

However if the spread breaks below, STOP at: 59000.00
I will ADD to the spread above: 72000.00 (& Again at the target)
(I want to see the spread AT/ABOVE/BELOW the state^ figures on the daily close)

Comments

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