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Sarantis | Radiant outlook, guidance on track; Buy reiterated

Solid 9-month execution – Sarantis announced solid 9-month results, growing revenues 11%, EBITDA 14% and EBIT 15%, all like-for-like, while adding some €59m in revenues and €5.5m in EBIT from Stella Pack in the period. The EBIT margin settled at 10.6%, up by 16bps yoy and above the targeted 10.2% for year-end. Q3’24 did see decelerating performance vs H1, mainly driven by higher costs vs Q3 last year, with like-for like EBIT down 5.8% on sequentially slower growth in revenues (+7.3% lfl). However this should by no means cause investor trepidation, with the group well on track to deliver on mgt’s guidance and continue executing focused on value-accretive “hero” products, organizational improvements and streamlining of costs.

Easily attainable 2024e targets – Given 9M delivery, 2024 guidance for EBIT of €61m (+14% lfl) and sales of €595m (+7% lfl) looks easily attainable, we reckon. The implied Q4 growth rate is 29% yoy at the EBIT level, on 11% sales growth, with the respective margin standing at 9% in the last quarter of the year. This includes c€22m in sales and c€1.7m in EBIT from Stella Pack, thus pointing to Q4 like-for-like growth of -6% and +11.5%, respectively (or a fairly flattish H2’24e), a performance which might be deemed conservative leaving scope for positive surprise.

Fine-tuning forecasts; still eyeing c10% EBIT CAGR over 2024-28e – We have made little changes to our revenue forecasts (+1%) while also lifting marginally 2024e EBIT (+1%) on category mix (beauty and skin care) and opex control which outweigh the negative mix effect from the rising contribution of household products (Stella Pack). As such we maintain our 2024e EBIT margin forecast at 10.2% (+0.5pps yoy and in sync with guidance). Overall, we project 2024e revenues of €600.6m (+25% yoy or +8% lfl) and EBIT of €61.4m (+31% yoy, or +16% lfl), just above guidance. Looking ahead, we maintain c5-6% organic revenue growth underpinned by mgt’s volume growth initiatives, with the EBIT margin expanding by >2pps by 2028e, despite the rise of private label products in the mix. This corresponds to c10% EBIT CAGR in 2024-28e.

Strong cash flow generation and balance sheet – Sarantis managed to lower its net debt position to a mere €12m in Q3’24 from €44m in H1’24, thanks to solid FCF generation in Q3. This is quite a commendable performance, with net debt having increased by €56m, effectively in sync with the €55m paid for Stella Pack, with the group also proceeding to a c€27m cash returns to shareholders in the 9M period (divis and buybacks). We estimate that thanks to strong cash flow generation, Sarantis is set to return to a net cash position post 2025. The group thus remains well-placed to retain a compelling remuneration policy (c38% payout included in our numbers), while building war chest for further M&A.

Attractive valuation – We roll over our DCF valuation to end 2025 and raise our PT to €15.1/share (from €14.5), also incorporating better working capital dynamics. The stock remains