Analysed by Jefferies
We foresee a more challenging outlook than expected for 2026, with high inflation, a likely different trajectory for interest rates and lower consumer confidence following events in the Middle East; however, we expect earnings to prove far more resilient than this year’s share price performance suggests (down 18% against a rise of 6% for the SXX).
The valuation is now very attractive, with a P/E ratio of 13 times and a free cash flow yield of 9% for 2027, at 10-year lows relative to the SXXP. We are cutting MSD’s EBITDA and lowering the target price to €26 per share. Buy.
Share faces multiple challenges…
Although the group has posted strong results over the past 18 months, the share has failed to meet expectations. Issues related to the depreciation of the US dollar — given that over half of profits are generated in the US — and difficulties arising from tariffs, alongside overseas supply chain issues, created headwinds last year. Although the outlook initially improved this year, the conflict in the Middle East has created fresh pressures, with the risk of interest rate rises rather than cuts, inflationary pressures that would once again require a price increase and a potential blow to consumer confidence, particularly in the more discretionary part of the business (approximately a third of revenue from new builds and renovations). Although we believe that the share price performance overestimates the impact on demand and profits, with a significant portion of revenue coming from the aftermarket (approximately two-thirds), we expect sentiment to remain subdued in the short term.
…but continues to deliver on results
Against a backdrop marked by tariff difficulties that forced changes to procurement and the relocation of production, high inflation that persisted last year and continues this year, as well as interest rates that remain high and are delaying the recovery in new-build construction, we believe that execution has been extremely solid. Fluidra and other players in the sector have remained disciplined and have continued to drive up prices, which has led to higher revenue growth alongside the aftermarket segment, with resilient gross margins and EBITDA margins that have widened further thanks to cost control and savings.
We expect a similar situation in 2026, with a greater need to raise prices due to inflation, and with Fluidra accelerating cost savings to drive margin expansion despite the pressures.
Recommendation: Buy, Target Price: €26 per share
