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QUEST HOLDINGS | Outlook remains buoyant

Impressive H1’21 performance… – Quest reported another solid set of results underpinned by continuing robust growth across-the-board. Group revenues shaped 47% higher yoy at €448m while H1’21 group EBITDA rose by 45% yoy. The respective group margin was sustained close to c9% despite a slight erosion in gross margins which was offset by positive operating leverage. Group net profit more than doubled yoy in H1 at €23.9m, affirming the solid footing on which the group remains.

… drives c5-7% upgrades to our estimates; we conservatively factor in H2’21 EBITDA growth +13% – Filtering through the strong H1 performance, we have lifted our revenues 5-7% for 2021-23e. Our 2021e assume H2’21 revenue growth will decelerate to +15% yoy, quite a conservative estimate but warranted, in our view, given the tough comps. At the profitability lines, we have fine-tuned our cost assumptions also reflecting the stronger-than-anticipated H1 trends in IT and courier services. Our FY’21 EBITDA forecast is thus raised to €76m (€61m ex-Cardlink), +27% yoy indicating H2’21 growth of +13% yoy. The bottom line is further enhanced, as the group is cycling a high tax payment in Q3’20, and we thus expect net profits to shape at €40.9m in FY’21, up by a whopping +156% yoy.

16% EBIT CAGR in 2020-23e… – The better than anticipated operating performance in H1 reinforces our view that Quest will build on its strong execution track record (>20% EBIT CAGR since 2015). Given the secular growth enjoyed by most of Quest’s segments (e.g. e-Commerce penetration, digitalization), we expect the pendulum of operating leverage to stay strongly positive, with the c14% 3-year sales CAGR (pro-forma for the disposal of Cardlink) driving a c16% CAGR in EBIT over 2021-23e.

… and plenty of balance sheet optionality – Quest enjoys a healthy balance sheet (€21m net debt in the seasonally weak, from a cash flow perspective, H1), which will be further bolstered by the cash proceeds from the sale of Cardlink (€93m, expected to close by the end of the year). The pro-forma strong net cash position means that Quest has enough war chest to pursue new investments in relevant ‘tech driven’ sectors and/or renewables, thereby finding new avenues of growth. Alternatively, Quest could deliver additional shareholder value through heftier cash returns. The shareholder return track record is solid (70% of cumulative 5-year net profit, further topped up by the return in kind associated with the REIC demerger), testament to mgt’s commitment in creating shareholder value.
ve enough war chest to pursue new investments in relevant ‘tech driven’ sectors and renewable energy parks.

Valuation – We reiterate 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. Our SOTP-based valuation – post the application of a 10% holding discount – yields a higher baseline value of €19.7 per share (from €18.40 previously), indicating a 2021e EV/EBITDA multiple (pro-forma) of 10.8x, undemanding given the growth profile.