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IDEAL HOLDINGS | Premium growth, discounted valuation, Balance Sheet optionality

Diversified group, exposed in cash generative and growth sectors… – IDEAL is a holding group active in 3 distinct sectors via specialized companies, most of which are among the leaders in their respective sector. Its portfolio spans across: 1) Industrial segment, namely crown corks manufacturing companies with a diverse client portfolio and geographic footprint; 2) IT, offering services such as cybersecurity, trust services and system integration; and 3) Specialty Retail, through the recently acquired Attica Department Stores (ADS). The group is thus well diversified across sectors (specialty retail 43% of EBITDAaL, IT 21%, Industry 36%), thereby mitigating risks from cyclical swings. Most importantly, all segments are quite cash generative while IT is in secular growth (digitization, RRF) and ADS offers exposure in the tourism growth theme.

… thus facing a strong profit outlook, with EBITDAaL CAGR 10% in 2023-27e – Given this unique combination of assets, IDEAL looks well positioned to enjoy strong growth. In Industry we envisage 4.5% sales CAGR over 2023-27e driven by volumes (low-single digit for brewers) and increasing geographic footprint. In IT, we model >20% growth in 2023 followed by 12-15% thereafter supported by project backlog, with further c10% growth optionality p.a. stemming from RRF. In Specialty Retail, given ADS’s brand positioning and market leading status benefiting from the influx of tourists, we expect 4-5% organic growth in the coming years leaving supply-led growth (e.g. Ellinikon) as optionality. All these coalesce in revenue CAGR (proforma for ADS) of c7% over 2023-27e and EBITDAaL CAGR of c10%, with the latter mainly driven by IT (18%).

M&A optionality key for the thesis … – IDEAL has a strong track record of deal-making, with the group in its current form being the result of the contribution of assets previously held by Virtus S.E. Fund. The exit proceeds for Virtus for its assets indicated 17-22% IRR and a multiple on invested capital (IC) 1.1-1.7x, in symphony with mgt’s hurdle rates. In 2022, IDEAL proceeded to the sale of 3 Cents to Coca-Cola Hellenic (CCH) for €46m, corresponding to 2.9x IC and IRR >100%. With M&A being embedded in mgt’s DNA, IDEAL has also proceeded to several acquisitions in the last 2 years growing its EBITDAaL base to >€50m (pro-forma), with the greater scale facilitating the seeking of more value-enhancing deals. The balance sheet is strong (2023e net debt/EBITDAaL 40% ytd but is little-changed since the transformative acquisition of ADS. At 25% discount vs the blended peer group, which looks palatable in our view given the 2-digit earnings growth, M&A optionality and scope for cash returns. Our valuation is based on a SOTP of the 3 segments to which we apply a 10% holding discount, coming up with an indicative baseline fair value/share near €7.9. This effectively values the group at c7.5x 2024e EV/EBITDA, broadly in line with the blended peer group. Flexing our WACC and perpetuity growth inputs by 0.5% yields a fair value range between €7.2 and €8.7/share.