Sarantis: Τιμή στόχος 10,00 ευρώ ( Beta Sec.)

Solid growth outlook at compelling valuation

As Greek economy shows early signs of returning to growth, we expect consumer spending uptrend to boost earnings outlook

We expect 2013a-16e EPS CAGR of 19%, on the back of upbeat home operations and strong CE Europe momentum

We initiate coverage with an Overweight recommendation; TP set at EUR10, implying 34% upside potential

Mild Q2 sequential improvement ahead of 38% y-o-y earnings jump in 2H14: First quarter recurring net earnings declined 19% y-o-y to EUR1.9m, hit by weak home sales and margin erosions in the key markets of Poland and Romania. That said, we see net earnings up 6% y-o-y to EUR4.2m in Q2, before jumping 38% y-o-y to EUR13m in H2 2014, thanks to a more positive Greek consumer backdrop and operating efficiency gains in CE Europe.

We forecast 2013e-16e group EPS CAGR of 19%: As Greek economy returns to growth (GDP to expand 0.6% and 2.9% in 2014e-15e, IMF), we expect consumer spending uptrend to boost earnings outlook. We see Sarantis group sales and net earnings up 8% and 21% y-o-y to EUR256m (EUR257m ex-FX moves) and EUR19m, respectively. For 2015e, we look for group sales and net earnings growths of 8% and 19% y-o-y to EUR277m and EUR22m, respectively, on improved domestic market conditions and higher margins.

Overweight rating with a target of EUR10; Upside potential of 34%: At 11.6x 2015e PE and 7.2x EV/EBITDA, Sarantis looks deeply undervalued, we believe. More importantly, heavy discounts (32-20% vs  its global peers) persist even at our TP. This is hardly justified, in our view, given Sarantis solid earnings outlook, driven by upbeat Greek operations and strong CE Europe momentum (making up 47% of 2015e group EBIT).

A perfect Greek consumer recovery play; Sarantis offers growth and value:-Besides its earnings growth profile and strong international foot print, we like Sarantis also for its robust balance sheet, FCF generation ability and cash rich position, leaving plenty of room for extra dividends. As Greek economy comes out of the recession, consumer spending may heat up boosting home sales and margins (on high operating leverage) beyond our estimates. New deals abroad could act as key performance catalysts. On the other hand, macroeconomic and political instability in Greece and CEE may dent profits.