Sarantis | Glowing growth, margin inflection; Buy
Solid Guidance, confident message, strong Buy – Sarantis mgt laid out a solid growth trajectory, guiding for c12% organic EBIT CAGR in the 2024-28e period following +30% growth in 2024e (of which 14% organic). Driving this material profit uplift will be strong organic top line growth (5-7%) underpinned by the focus on value-accretive “hero” products, SKU rationalization, organizational improvements and further streamlining of costs. Overall, Sarantis looks headed for EBIT near €76-77m by 2026e, 2x the respective 2020 level (excl. Estee Lauder contribution) signifying a material reset to profitability. Given the 2-digit growth profile and the material cash flow generation resulting from it (since capex over 2024-28e will absorb only c25% of operating cash flow over the period on our estimates), we find the case quite compelling reiterating our high-conviction Buy rating.Solid 2023 execution – 2023 was a transition year, following the divestment of the EL JV (mid-2022) and timeline delays regarding the completion of the Stella Pack deal. Despite these headwinds, operational execution was strong and was coupled with cost monitoring, with Sarantis growing revenues 8% (driven by price/mix) and core EBIT (namely EBIT ex EL) +46% to €47m (vs €32m in 2022), delivering 2.5pps core margin expansion (to 9.8%, a record level seen in 2020), quite a commendable performance providing the platform for future growth.
Lifting forecasts to align with the upbeat outlook – We have lifted our revenue forecasts by 2%, embracing management’s focus on growing “hero” brands. Coupled with abating input costs and opex containment, this drives a c1.7bps EBIT margin acceleration by 2026e. We thus envisage 23% yoy revenue increase in 2024 (of which c17pps from Stella pack) filtering through to a 2024e adj. EBIT of €60.8m (+29% yoy, +14% organic), in sync with guidance. Looking ahead, we pencil in c5-6% organic revenue growth in 2025-26e, coupled with slight margin accretion, which corresponds to c10% mid-term EBIT CAGR (c12% guided by mgt), far more attractive than the 7-8% CAGR offered elsewhere in the EU HPC sector.
Balance sheet optionality – Sarantis enjoys a very robust balance sheet (€44m net cash in 2023) and is set to end 2024 on a small net debt position, following the completion of the Stella Pack acquisition (just 0.1x net debt/EBITDA in 2024e). Thanks to the strong cash flow profile, Sarantis is set to return to a net cash position post 2025 thus being well-placed to retain a consistent shareholder remuneration policy (c38% payout included in our numbers), while building war chest for further M&A.
Attractive valuation – Following the material upgrades to our estimates (and a small reduction to our WACC assumption to 9.1% from 9.5% before), we raise our DCF-based PT for Sarantis to €14.5. Our PT effectively values the stock at 11.6x 12mth fwd EV/EBITDA, still some c8% discount vs EU HPC peers. With the stock at >30% discount vs the peer group while offering a superior growth profile, we argue there is plenty of room for the relative discount to close as the group scales up further and the strong growth momentum continues.
Co. is a consumer goods manufacturer and distributor engaged in operations in Greece. Co. produces consumer goods such as cosmetics, pharmaceuticals, households, pet products, car's accessories and apparel. Co. produces its own brand name of cosmetic products such as Prosar, Str8, BU99, Clochard, Carroten, Tokalon and others. Co.'s product portfolio also includes a range of international brands such as Estee Lauder, Clinique, Aramis, Donna Karen, Orlane, Montana Versace and others.
Eurobank Equities is a Greek-based firm offering research, sales and trading services to institutional, corporate and private clients. The company is wholly owned by Eurobank, one of the 4 systemic banks in Greece.
Eurobank Equities S.A. offers a comprehensive suite of investment products—including equities, derivatives, bonds, and mutual funds—serving over 15,000 private, corporate, and institutional clients in Greece and internationally.
The firm maintains a dominant position in the Greek capital markets, consistently ranking among the top brokers in terms of market share and is repeatedly recognised in major institutional investor surveys as one of the leading brokers and top Equity Research Providers for Greece.
Its multi-awarded Research Division delivers timely insights and fundamental coverage on almost 40 listed companies—representing over 90% of the ATHEX’s market capitalisation and traded value.
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