Ontex Buckle up for the next inflation cycle

Raw materials inflation is back on the agenda with polypropylene and polyethylene up c. 30% YTD. The previous raw materials inflation cycles have learned that Ontex cannot pass such a sizable inflation swiftly to its customers but will need at least a few quarters to do so. We believe the FY26 guidance of 10% adjusted EBITDA growth is no longer achievable and have lowered our forecasts to now include a 3% y/y drop. Lowered forecasts also imply that the headroom vs debt covenants is shrinking, although we do not yet expect Ontex would have to renegotiate with its lenders. We still see larger strategic moves like a combination with a US-focused peer as an eventual end game for Ontex, given the limited structural growth of its industry and the limitations to operational improvements. Taking into account the lowered forecasts, we cut our TP from € 6.5 to € 5. Given the remaining upside, we maintain our Accumulate rating.