Harm reduction group as an investment

We called Sebastian Andersson who is a stock analyst at Redeye to hear what he thinks about the future of e-cigarettes and how the market will develop.

How do you see the future of e-cigarettes in Sweden in the next 2-3 years? 2-3 years?

It is clear that the market will continue to expand annually. Both large and small players in the global nicotine market have directed their interest towards e-cigarettes, both for smoking cessation and to increase their market shares. With regard to the Swedish market, we predict sales of approximately SEK 500 million in 2023. We expect that demand will increase in the retail sector in the future, and that the market will amount to approximately SEK 2 billion in 2025.

Now that competition is increasing in this industry, what will be the most important competitive advantages?

We believe that a wide distribution network together with quality products creates demand for both the stores that sell e-cigarettes and the consumer who buys. To get into different distribution channels, you need a good selection, and to sell once you are in, you need good quality products. As e-cigarettes are a relatively young and new product, the quality has varied greatly since its launch. We believe that will change, where those who bet and invest in product quality will stand as winners in the coming years.

What are the most important strategic goals for a company in e-cigarettes in the short or long term?

In the short term, I think you have to get into different distribution channels with either your own products or resell other people's. If you build up a large network and maintain the relationship over time, you should gain volume-wise economies of scale compared to competitors, which contributes to better margins and a stronger positioning for the long-term strategy. In the long term, I believe in product development of self-produced products within the segment to be able to develop its profitability. The companies that can develop product advantages in the form of flavorings, design, and technical innovations should have advantages in the market both in terms of demand and in terms of margins.

What does the e-cigarette market look like in the rest of the world?

Today, over a billion people smoke traditional cigarettes. But even now the global e-cigarette market is valued at USD 22.8 billion in 2022 and is expected to grow at a compound annual growth rate (CAGR) of 4.4% until 2027. If you do a quick trend scan, you will see an increased understanding of e-cigarettes as a safer alternative to traditional cigarettes, while the growing market is driven by increased popularity among the younger population. In Europe, the UK is the largest market, where traditional tobacco countries such as Germany, Spain and Italy also hold large parts of the market.

How do you see Harm Reduction Group's growth in the coming years?

Today, Harm Reduction Group has approximately 27% of the e-cigarette market in Sweden. We believe that the larger tobacco companies will contribute with increased competition, something that we already see today, but that Harm Reduction Group has good opportunities to maintain its market share in the coming years. Mainly because of its positioning in retail.

Which players do you think will fight for the e-cigarette market?

Already now, we see the larger companies in the tobacco industry positioning themselves strongly in e-cigarettes. BAT has begun its sales journey in Sweden and we also believe that Philip Morris will be a major player in Sweden going forward. Of the Swedish companies, we see Harm Reduction Group, Eciggkedjan and Vont as three companies that were early on the market and that have seen the advantages and growth opportunities of nicotine, instead of tobacco.