Greek based Sarantis (SRTSF) is a cosmetics and consumer products company that is in growth mode. The company has its own proprietary products but also teams up with a lot of major blue chip companies that are well known. The stock goes through boom and bust cycles along with Greece and Eastern Europe. This small cap could be interesting at the right price.
From the company's website
The stock trades for EUR8.30, there are 67.15 million shares, and the market cap is EUR557 million. Earnings per share are EUR0.51 and the price to earnings ratio is 16. The dividend is EUR0.14 and the dividend yield is 1.69%. The price to earnings ratio of 16 is cheap compared to the PE ratio on the S&P which is 20.67.
Growth has been phenomenal. Look at this PDF which goes clear back to 2006. Sales grew from EUR201 million to EUR384 million in fiscal 2019. Earnings grew from EUR22 million to EUR37 million over that time frame. As you can see, earnings didn't quite keep up with sales growth. Expenses have increased and profit margins fell over time. Still, the company is extremely profitable. Profit margins are 9.65%, operating margins 11.63%, and the return on equity is 16.28%.
The balance sheet is strong. There is EUR27 million in cash and EUR110 million in receivables. The liability side shows EUR55 million in payables and EUR57 million in debt.
Sarantis derives 34.6% of sales in Greece, 16% Poland, and the rest in Eastern Europe. 44% of sales are cosmetics and toiletries, 43% household products, 10% luxury cosmetics, and 3% healthcare products.
Sarantis sells its own products and teams up with other major companies to manufacture their name brands and distribute in Eastern Europe. I will try to give you an idea of some of the companies that Sarantis has teamed with but really, there are hundreds of products involved. Sarantis has teamed with Dwight and Church (NYSE:CHD) to manufacture Arm & Hammer Baking Soda. Sarantis has teamed with Coty (NYSE:COTY) to produce dozens of perfumes and hair products including: Gucci, Lacoste, Calvin Klein, and Tiffany. Septifos, which is used in septic tanks and is owned by German giant Henkel (HENKY). Nutregena and Johnson Baby from Johnson & Johnson (NYSE:JNJ). The company bought Noxema Greece in 2015.
Its products are sold through: British superstore giant Tesco (TSCDY), Aldis, Lydl, Carrefour (CRRFY), Metro, and just about every other major European market that you can think of. In my years of investing in European retailers and consumer products, I always check Tesco, Aldis, and Lydl. The reason is that Tesco is the old line British blue chip. Aldis and Lydl are the German upstarts who have shaken up the world by being well run, low cost grocery stores. The two have shaken up the U.S. and other countries as well. If Sarantis can get into this many stores, this is very impressive.
By no means is Sarantis immune to economic downturns. In 2008, revenues were EUR236 million. In 2009, EUR198 million. The Greek Economic Crisis took place at about the same time that our collapse occurred in the U.S. It's no surprise that people buy less perfume in bad times, even if Sarantis produces lots of other items.
It appears to me that Eastern Europe and Sarantis are not experiencing some of the retail issues that we are facing in the U.S. Many old line consumer products companies like Procter & Gamble (NYSE:PG) and Kraft/Heinz (NASDAQ:KHC) have experienced slow growth and the change of the marketing models. Of course Amazon (NASDAQ:AMZN) has changed the landscape as you can now buy many items online. It seems that in Eastern Europe, consumers still buy in stores.
The Sarantis family owns 51% of the shares. I found the stock by reading in Barron's about the Grandeur Peak International Stalwarts fund (GISOX). Sarantis is a constituent member of MSCI Global Small Cap Index.
The stock has been around for a long time so there is ample information. In 1999, it traded at EUR23. It then collapsed and got down to a little over one euro. In 2007, it got all the way up to EUR14. In 2012, it collapsed again to the one euro range. In early this year, the stock climbed to EUR15 before coming back down to the EUR8 range. I hate to say it but maybe you'd be better off waiting for the stock to fall to one euro again. The stock has a pink sheet in the U.S. but is thinly traded.
I like the stock. What's not to like? Sarantis is a growth company. It goes through booms and busts along with Greece and Eastern Europe. I'm not going to buy now. In the last 20 years, it has touched one euro twice. Perhaps that's when you should buy. Management has a huge stake and the company is well financed.
Disclaimer: We do not own shares.
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This article first appeared on GuruFocus.