Equity research Candles Scandinavia: Expansion to spark growth and shareholder value

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Candles Scandinavia (“Candles” or the “Company”) has finally implemented the automated production line, enabling significant capacity expansion. The company reported 43% sales growth in Q1 2025/2026, fueled by a strategic focus on international markets. The acquisition of HashtagYou will expand its brand portfolio and value-chain integration. Supported by cost synergies and renewed growth momentum, we see improved profitability.

Production expansion and upgrade are in place

Early this summer, Candles announced that the new automated production line was in place, allowing for a significant capacity increase in the existing facilities. The transition from the old manufacturing set-up has been more expensive and time-consuming than expected. As a result, costs have been duplicated and profitability has been slow to recover. However, we believe the Private Label business has a good foundation for profitable growth. Subsequently, Candles announced redundancies in the manufacturing of 25 FTE, which should help pave the way for improved operational efficiency. In parallel, reported orders indicate that the focus on international sales in recent years is paying off. Sales have picked up markedly in recent quarters and grew by 43 per cent in Q1 2025/2026.

Integrating the value chain with a transformative acquisition

In late July 2025, Candles announced the acquisition of 100 per cent of HashtagYou GmbH, a German direct-to-consumer (D2C) company specialising in home fragrances, in a combined shares and cash offer. The acquisition represents a significant step to deliver on the strategy to establish proprietary brands, to complement the private-label business and enable value-chain integration. Candles projects that group revenue will increase by some SEK 250m as a result. Hence, Candles grows its international presence significantly, and the Company estimates EBITDA contribution of SEK 40-45 million from about one year following the acquisition through synergies and cost savings. The upfront payment consists of 1.28m new shares and a SEK 7m cash component.  In addition, the sellers may receive an earnout of up to SEK 57m contingent on the financial performance within the next three years. Overall, we interpret the relatively large earn-out component as favourable, mitigating some risk associated with the projected contributions from the acquisition. Including the earn-out, the implied valuation of HashtagYou on a debt-free basis corresponds to a projected sales multiple of approximately 0.6x.

Improved growth momentum supports investment case

In 2025, Candles shares have gained on resumed organic growth and M&A news flow. We see further potential as we expect growth and earnings momentum to develop positively. The cost synergies mentioned above underpin the outlook for significant improvement in profitability in the medium term. We have assumed Candles will eventually close the margin gap to larger international peers.

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