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Sarantis | On firm footing but fairly priced

In our new note on Sarantis we reiterate our Hold rating on valuation grounds, with the stock trading at c.30% 2021e EV/EBITDA discount vs. EU peers, a level we consider fair as we argue this discount is justified by factors such as Sarantis’s smaller size, inferior margins and lower brand equity.

We remain structurally positive for the stock and believe Sarantis is well-placed to deliver c.6-7% organic sales growth and EBIT growth in the low teens in the coming years, given the balanced category exposure (both aspirational and functional) and the diverse geographic footprint. Post 2021 our margin expectations reflect the phasing-out of Sarantis’s EL stake and we thus anticipate a 50-60bps EBIT margin expansion per annum. Overall, our numbers envisage c.15% 3-year EBIT CAGR for the standalone business, quite a solid growth profile among EU peers.

Despite the aforementioned long-term positives, we note that the stock has recovered >80% of the plunge triggered since the sell-off began, outperforming other Greek non-financials by >20% in the same period. Valuation is thus the main hurdle restraining our positivity on the stock.

We note that our methodology values the EL JV as a limited-life business (assuming EL will exercise its call options), with Sarantis’s 49% stake gradually phased-out until 2027. To this, we add the value of the stand-alone business, which we calculate through a DCF.