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Quest Holdings | Balancing dynamics underpin near-term growth

Balanced model driving 6.5% 3-yr sales CAGR… – Quest is active in 4 operating segments, with quite a balanced portfolio in services and products sectors, enabling it to weather the challenging backdrop. The near-term outlook is characterized by many moving parts, namely 1) decelerating consumption trends, albeit with demand for Apple products remaining solid, 2) more tepid trends in e-commerce, thus affecting both commercial activities (Quest online) and courier services, 3) sustained inflation in energy and transport costs, 4) high demand for ICT propelled by the “EU digital push” and 5) improving cost structure in IT services. With these in mind, we have lowered our top line 2022-23e by c3-4% but are still eyeing quite healthy growth in 2022 (+4% yoy), accelerating to +7-8% in FY’23-24e.

… on slightly improving margins, thus leading to 8% EBIT CAGR – Although we see slight margin erosion in 2022 (-10bps yoy) mainly as a result of the moderately lowered margin in courier services, we anticipate a slight enhancement from 2023, owing to a recovery in ACS and the gradual improvement we see in the IT services’ cost structure. Additionally, the upgrade in the clima business (stemming from the acquisition of G.E. Dimitriou) will gradually filter through to commercial product margins. All the above amalgamate into a mild downward revision to our FY22e EBITDA (at €65.7m), which still corresponds to mild growth yoy (+2.5%). We see accelerating performance in 2023 with EBITDA up 12% yoy. Overall, we estimate a c8% CAGR in group operating profits (EBIT) in the next 3 years driven by the digitization push (IT services), recovering demand for IT products and rising e-Commerce penetration.

Solid start to 2022 – The group reported Q1 EBITDA growth of 18% on 16% higher sales, quite a solid start aided by strong demand early in 2022 and cost management. As such, our forecast conservatively implies just 1% yoy revenue growth and a -2% EBITDA decline for the remainder of the year. Across the segments, we expect low to mid-single digit sales growth in commercial products, negative low to mid-single digit decline in ACS but double-digit growth in IT services revenues.

Balance sheet optionality – Quest enjoys a healthy liquidity position (c€120m gross cash), even after the Cardlink-related special dividend. The company has thus enough war chest to fund potential M&A and/or return value to shareholders. Following the payment of a €0.15 DPS in 2022 (ordinary), our numbers pencil in accelerating returns in the future.

Valuation – Our valuation is based on a SOTP of Quest’s 4 core segments to which we apply a 10% holding discount, with our indicative baseline fair value near €7.0/share, indicating c11.5x 12-mth forward EV/EBITDA. We reiterate our view that the current valuation constitutes a compelling risk-reward proposition, underpinned by the solid underlying outlook and the value we expect will crystalize over time by rising shareholder returns and/or M&A.