We initiate coverage on Quest Holdings with an OVERWEIGHT rating and a TP of €25.99/share.
Our TP is based on a sum of the parts valuation of the various business segments from which we derive am Enterprise Value (EV) on top of which we add projected FY’19 Net Debt position of the group, non-core participations of the mother company (Holding) and 4 real estate non-operating assets valued at 40% discount over book value.
Operations’ and geographical diversification safeguard profitability
We favor Quest’s diversification in different business segments, thus eliminating profitability fluctuation. We like exposure in promising sectors such as electronic payments, courier services (fast booming due to rising e-commerce sales) and branded well recognized retail brands (Apple through iSquare and iStorm). Renewable (photovoltaic) energy footprint with ample cashflow and high profitability margin (>75% EBITDA margin) enahances B/S, profitability and future growth. Geographical diversification, with 16.7% of FY’18 cons sales deriving from international activities not at the expense of profitability margins justifies further enhancement of international business.
Future growth to be supported by optimizing existing business and expansion into new activities.
Quest seeks margins enhancement and operations optimization under current trading conditions to boost earnings. To this direction the company examines and is targeting to add 1-2 new activities by 2021 as mentioned in its strategy. We think potential new investment areas include wind energy segment and new IT brand names representation in the technology sector. We think Apple and Xaomi business are yet to be fully exploited while WC optimization will further boost cash flow generation.
Trading multiples and Target Price
Quest group trades at a projected FY’19 P.E ratio 14.3x. The company entails an ample cash generation ability reflected in projected FY’19 cash flow yield of 14.2% while maintaining a 2% DY and trading at an EV/EBITDA multiple of 5.5x. The company is debt free with a projected net cash position by end-2019 od €23.1mn. We think the company is undervalued with future growth prospects not yet priced in. We assign an OW recommendation with a TP of €25.99/share.