Sarantis - fm Manos Chatzidakis

Sarantis (OW, TP EUR10.00, Current EUR8.00)

H1/Q2 2014a group results review: Mild sequential improvement on flattish Q2 profits to EUR4m (vs -19% in 1Q14) – “in line”

Sarantis released its H1/Q2 2014 group results yesterday, post market close, which came in broadly in line with our forecasts. In Q2, group recurring net earnings remained flattish at EUR4m (vs a drop of 19% in 1Q14) indicating a mild sequential improvement as Greece’s sound performance (sales recovery on a more benign economic backdrop - strong efficiency gains) was largely offset by operating margin erosions in Poland and Romania.
The company will host a conference call today at 17:00 AST (Athens), 15:00 BST (London), 10:00 EST (New York).

Conference Phone: GR +30 211 180 2000, FR +33 (0) 170 918 711, DE +49 (0) 69 2222 4493, IT +39 06 452 36 748, UK +44 (0) 800 368 1063, US +1 866 288 9315

 Key points:

·         H1 group sales grew by 4% y-o-y to EUR121m (1% above BETAe), rising 5% y-o-y to EUR122m at constant currencies.

·         In contrast, H1 2014 group EBIT and clean net earnings (ex-EUR0.8m one off deferred taxation linked to ASTRID acquisition) posted declines of 3% and 7% y-o-y to EUR6.9m (vs BETAe of EUR7.1m) and EUR5.9m (vs BETAe of EUR6.1m), respectively. This rather small miss to our earnings forecasts call is largely attributed to net financial expenses of EUR0.3m in Q2 2014 (vs net financial income of  EUR0.5m in 1Q14 and EUR0.4m in 2Q13).

·         Q2 group sales were up 7% y-o-y to EUR70m (1% ahead of our estimates) thanks to a rise of 9% y-o-y to EUR41m in international markets, driven also by a home sales increase of 4% y-o-y to EUR29m - reversing first quarter’s negative growth trend of 3%. This top-line rebound in Greek operations may prove a game changer, in our view, acting as a key growth driver for the group. Recall that Greece’s April 2014 turnover index in retail trade advanced 3.9% y-o-y (+7.3% volume wise) - the first positive growth in retail sales since June 2010.

·         In terms of Q2 2014 sales, Greece represented 42% of group total, while international operations 58%. Second quarter sales in Poland and Romania posted increases of 2% and 12% y-o-y to EUR18m and EUR10m, respectively, accounting for 26% and 14% of total.

·         As expected, Sarantis Q2 group gross margin remained resilient at 49.9% courtesy of better sourcing and lower production costs.

·         Moving further down the P&L, Q2 group EBITDA and EBIT rose 1% and 3% y-o-y to EUR5.6m (vs BETAe EUR5.8m) and EUR4.7m (vs BETAe EUR4.9m), despite seasonally increased marketing (promotional) costs to boost demand for Sarantis products. Tellingly, Q2 selling expenses were up 11% y-o-y to EUR28m (representing 39.4% of sales against 38% in Q2 2013) since 70% of Sarantis’ annual marketing expenses were booked in H1 2014.

·         Greek EBIT margin surprised on the upside gaining 110bps to 13.6%, pushing domestic EBIT up 14% y-o-y to EUR4m (13% higher vs our forecasts of EUR3.5m).

·         On the flip side, international operations EBIT dropped 32% y-o-y to EUR0.8m (quite lower vs BETAe of EUR1.3m), albeit from a low base, hit by significant margin declines (down to 1.9% from 3% in Q2 2013), particularly painful in the key markets of Poland and Romania.

·         Adjusting for EUR0.8m deferred tax linked to ASTRID’s recent acquisition, Q2 recurring EBT fell 12% y-o-y to EUR4.4m largely due to EUR0.3m financial expenses (compared with EUR0.4m net financial income in Q2 2013).

·         In the same vein, clean Q2 2014 net earnings were flattish at EUR3.9m, down 21% y-o-y to EUR3.1m at a reported level.

Conclusion:

An overall positive second quarter performance for Sarantis on diverging regional trends though, as Greece’s strong top-line recovery and higher operating efficiency was largely counterbalanced by weakening margins in Poland and Romania, while Czech operations reported yet again losses.

Going forward, we look for a robust group earnings growth (+39% y-o-y to EUR13m) in H2 2014, underpinned by consumer sentiment recovery in Greece and margin enhancement in CEE. 

 

Kind regards,

 

Spiros Tsangalakis

Senior Equity Analyst

BETA Securities S.A.

29 Alexandras Ave.

GR - 11473

Athens, Greece