Ontex FIRST LOOK: Divestment of Brazil is a big step in strategy execution

The binding agreement announced today to sell the Brazilian business to Softys allows Ontex to further progress on its strategic agenda to focus on its European and North American businesses, leaving only one remaining non-core asset (Turkey) for the time being. Despite our enthusiasm on the strategic progress, the deal value (€ 110m or 5-5.5x EV/EBITDA24e) is not overwhelmingly positive, certainly when taking into account the significant leakage on transaction and tax expenses. We continue to appreciate Ontex for the turnaround story it is delivering. We remind that the company posted strong 2Q results with adjusted EBITDA up 32% y/y. The balance sheet has significantly strengthened with net debt/EBITDA down to 2.5x. On the back of the much improved earnings momentum, solid growth prospects and ambitions in North America and the attractive intrinsic forward valuation, we maintain our BUY rating and € 12 target price.