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Sarantis | Premium shift; value unfolding

Margin expansion remains key driver… – Sarantis’ medium-term guidance anchors the investment case, with management targeting EBITDA of €120m by 2028, implying sustained profitability growth from current levels (+10.5% CAGR). Underpinning this is a structurally improving product mix across both categories and geographies, with exports and premiumized product lines gaining traction. In our view, the combination of mix enhancement and operating leverage provides strong visibility on further margin expansion, even in a less supportive demand environment.

… building on solid 2025 base – FY’25 results confirmed the strength of this transition, with EBIT rising 10% yoy to €67m and margins expanding by 100bps to 11.2%, despite broadly flat revenues. Performance was supported by disciplined cost management and a continued shift toward higher-margin SKUs, while underlying trends remained more resilient than headline sales suggest, with HERO brands growing 3.4% yoy. Exports continued to scale rapidly, contributing disproportionately to profitability given their superior margin profile. Overall, the results highlight Sarantis’ ability to defend and expand margins even amid a demanding backdrop.

2026 guidance slightly lowered but 2026e EBIT still set to grow c9%; we envisage high single-digit EBIT CAGR ahead – Mgt’s updated 2026 guidance points to continued profitability growth, with EBITDA expected at €97m (+9% yoy) on revenues of €620m (+3.5%), albeit c3% below the initial 5-year plan as cost-related headwinds persist. Our forecasts remain somewhat more conservative, with 2026 EBITDA at €95m, EBIT at €72m and margins at 15.3% and 11.7% respectively, reflecting a softer macro backdrop and the near-term input cost risks. Beyond 2026, we estimate 9% EBIT CAGR in 2025-28e, thanks to operating leverage, mix improvement and the gradual payback from recent investments, with EBIT margins rising to c13% by 2028, also underpinned by the growing contribution of higher-margin categories, most notably Beauty & Skin Care.

Robust cash generation supports optionality – Sarantis’ strong cash-generative model remains a key pillar of the investment case, supported by tight WC mgt and improving OCF conversion (>70%). The group has delivered resilient FCF despite elevated capex (€55m in 2024-25, c60% of 5-year plan). Looking ahead, we estimate cumulative net cash inflows of >€150m over 2026-28, including the final €21m tranche from the Estée Lauder stake sale, supporting a strong balance sheet, attractive shareholder remuneration (>45% payout), and flexibility for selective M&A.

Valuation – In our view the current price offers an appealing entry point, with the stock trading broadly in line with its LTA despite a clear improvement in profitability and solid cash generation, and at c20% discount vs the EU HPC index peers. We believe this discount is not warranted given Sarantis’ growth profile and margin trajectory, and we see scope for further re-rating as execution continues to deliver. Our DCF yields a 12m PT of €16 (unchanged), implying c10x 2026e fwd EV/EBITDA, still leaving SAR at a meaningful discount vs EU HPC peers. Our updated DCF incorporates a slightly higher WACC (8.9%), reflecting the recent uptick in govt yields. We reiterate our Buy rating.