International Skin And Sun Care Expansion Will Foster Positive Outcomes

Key Takeaways

• Strategic expansions in skincare, integration of Stella Pack, and portfolio optimization are anticipated to enhance revenue growth and operational efficiencies, boosting net margins.
  
• Digital transformation and route-to-market strategy adjustments aim to improve cost management and drive revenue growth, enhancing profitability.
  
• Operational challenges and significant capital expenditures from acquisitions may strain cash flow, while market saturation and geopolitical instability pose risks to revenue stability.

Catalysts

Produces and trades in cosmetics, household products, and pharmaceutical items in Greece, Portugal, Poland, Romania, Bulgaria, Serbia, Bosnia-Herzegovina, North Macedonia, Slovenia, Czech-Slovakia, Hungary, and Ukraine.

• Strategic international expansion, particularly in skin care and sun care brands like Carroten, Bioten, and Clinea, in the U.S., Middle East, and traditional markets such as Australia, is anticipated to boost revenue growth with high margin returns.
  
• Integration of Stella Pack and investments in expanding regranulation capabilities are expected to improve operational efficiencies and profitability, positively impacting net margins.
  
• The focus on HERO SKUs and portfolio optimization should lead to cost reductions and improved inventory management, enhancing net margins.
  
• Ongoing digital transformation initiatives, including the implementation of SAP and an integrated business planning tool, aim to increase operational efficiency and reduce costs, thereby positively affecting net margins and earnings growth.
  
• Expansion and increased sales in regions like Greece and the West Balkans, coupled with adjustments in the route-to-market strategy in Hungary, are expected to drive revenue growth and improve profitability.

Gr. Sarantis Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Gr. Sarantis's revenue will grow by 5.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.7% today to 9.8% in 3 years time.
• Analysts expect earnings to reach €68.4 million (and earnings per share of €0.86) by about May 2028, up from €46.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.0x on those 2028 earnings, down from 18.4x today. This future PE is greater than the current PE for the GR Personal Products industry at 15.1x.
• Analysts expect the number of shares outstanding to decline by 1.05% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.29%, as per the Simply Wall St company report.

Gr. Sarantis Future Earnings Per Share Growth

Risks

• The operational challenges related to integrating acquisitions like Stella Pack, along with the significant capital expenditures required, may strain the company's cash flow and financial stability, potentially impacting its earnings and net margins negatively.
  
• The slowed growth projection for 2025 compared to 2024's organic growth suggests potential market saturation or weakening demand in key categories, which could adversely affect overall revenue.
  
• The economic and geopolitical instability in Ukraine poses a risk, as continued conflict may limit opportunities for growth, impacting regional sales and consequently, the company's total revenue.
  
• The heavy reliance on specific product categories and markets, such as skin and sun care in the U.S. and Middle East, represents concentration risk that could affect revenue stability if these markets do not perform as expected.
  
• The continued pressure from private labels in the garbage bags sector and the need to remain cost-competitive may compress profit margins, impacting both revenue and net income.

Valuation

• The analysts have a consensus price target of €15.05 for Gr. Sarantis based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €16.4, and the most bearish reporting a price target of just €13.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €694.7 million, earnings will come to €68.4 million, and it would be trading on a PE ratio of 18.0x, assuming you use a discount rate of 10.3%.
  
• Given the current share price of €13.3, the analyst price target of €15.05 is 11.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.