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Quest Holdings | Cash and growth

2022: Strong performance across all divisions in a record year – Quest delivered c12-13% sales and EBITDA growth in 2022, testament to its strong market position, consistent execution and effective cost mgt. Although the year was marked by several challenges (slowing consumption trends, tough comps, supply chain issues) and a tough comparative, the significant boost from Apple products and IT services along with pricing in ACS, led to double digit sales growth with revenues surpassing the €1bn mark. On the cost side, Quest offset the slight gross margin erosion (-10bps yoy) with opex monitoring, thus maintaining an EBITDA margin of 7%. The bottom line was weighed down by higher net financials and increased taxes, but with Quest overall capping a very successful year delivering more than €40m net profit.

2023: raising estimates on healthy outlook… – Quest enjoys a quite a balanced portfolio in services and products sectors, enabling it to efficiently navigate challenging settings. Filtering through the solid outlook in IT services (where we see a 2-digit growth profile) and a better than previously anticipated performance in courier services (price-driven) and commercial products (owing to clima and Apple products), we have raised our 2023-25e EBITDA by 4-5%, eyeing a solid high single digit growth at both revenue and EBITDA level.

Well placed to capture growth across its core segments – Looking beyond 2023, we see both cyclical and secular growth drivers, on account of the digitization boost, EU’s ‘green push’ and rising penetration of e-commerce. With the first indications on RRF funding applications pointing to quite healthy absorption rates and the improving implementation/benefits of gvt subsidized recycling programs, we incorporate mid-to-high single digit growth rates in commercial activities and courier services in 2024-25e, while maintaining a high single-low double digit growth profile in IT services. This results to 8% sales CAGR over 2023-25e and a similar growth in EBITDA.

Balance sheet optionality – Quest stands on a net cash position of €29m, while enjoying a solid liquidity position (>€200m in available cash and credit lines). Given the track record of cash flow generation and shareholder remuneration, we see strong balance sheet optionality with ample room for Quest to pursue further acquisitions or press ahead with heftier returns to shareholders. As a reminder, Quest is set to pay a €0.20 DPS (ex-date 20th June, indicating a c4% yield), with our numbers penciling in rising dividend in sync with earnings.

Appealing 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, effectively implying a c9.2x 12-mth forward EV/EBITDA on our updated figures. We reiterate our view that the current valuation constitutes a compelling risk-reward proposition, underpinned by the solid outlook and the prospect for rising shareholder returns and/or M&A-related value crystallization.