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QUEST HOLDINGS | Beat and raise

Strong FY’21 execution (beat) – Full year results affirmed once again Quest’s strong execution, with growth remaining robust across all segments. Revenues from continuing operations shaped 33% higher yoy at €916m, and although Q4 trends did moderate, Quest managed to sustain a double-digit growth rate (+20% in Q4 from +40% in 9M’21). FY’21 EBITDA rose an impressive +34% yoy reaching €64m while net profit from continuing operations settled at €42.7m, markedly higher than €13.6m in FY20. Reported numbers were further propelled by the capital gain related to the sale of Cardlink, with Quest reporting net profit of €125m.

3-4% EBITDA upgrades, mid-to-high single digit growth in the coming years (raise) – Following on from the FY21 results, we have increased our EBITDA numbers by 3-4% over 2022-24e. We effectively filter through partially the recent results beat, preferring to err on the downside given the uncertainty around the demand outlook in the face of the inflationary pressures arising from the Russia-Ukraine war and the supply chain frictions. That said, we argue that Quest’s diversified business structure will enable it to deliver healthy sales (+9%) and EBIT growth (+6%) in 2022. Across the segments, we expect milder growth in commercial activities products given the tougher comparative, but we see double digit growth in IT services, bolstered by the Intelli acquisition. For the courier business, we are eyeing 8% sales growth but little-changed profitability. In 2023-24 we are looking for 8-10% EBIT growth underpinned by the digitization push (IT services), strong demand for IT products and rising e-Commerce penetration, as well as add-on potential from the Clima business.

Balance sheet optionality given ample liquidity – Following the disposal of Cardlink, Quest’s net cash position was boosted to €85m (as of Dec’21), with the group having since then proceeded to a special dividend distribution of c€45m. We expect the available liquidity to be channeled to investments (GE Dimitriou acquisition pending) and/or further cash returns. Balance sheet optionality is thus sustained and remains at the core of the investment thesis.

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 €7.3/share on the new share count (post-split). We believe that current valuation, which indicates c9.3x 12m forward EBITDA, remains compelling given the growth prospects and optionality from capital deployment which ought to help crystallize further value.