Ontex Share price reaction overdone -Model update

Ontex' share price retreated significantly upon the release of 3Q results, which showed weaker than expected like-for-like top line growth (+1.7% vs +4% consensus) and a reduction of the FY24 like-for-like revenue growth guidance from 4-5% to 2-3%. The issue appears to be of a temporary nature being that Ontex was a bit too bullish previously on the ramp up pace of the new US contracts which were held back by various technical reasons. Whilst the guidance reduction appears a bit strange (coming only one quarter after an upgrade), we do consider the share price reaction to be overdone. Looking ahead, we expect continued steady volume growth into 2025 on the back of the US with margins to maintain y/y momentum on the back of cost savings in Europe and growing economies of scale in the US. With the recent agreement to divest the Brazilian business, Ontex is also making progress on its strategy execution. On the back of the much improved earnings momentum, solid growth prospects/ambitions in North America and the attractive intrinsic forward valuation, we maintain our BUY rating and € 12 target price.