Relais Q3'24: Raskone driving growth

Translation: Original published in Finnish on 11/7/2024 at 10:35 pm EET.

Relais's Q3 numbers released on Thursday missed our forecasts by a small margin, which we believe was at least partly influenced by the fact that the company said demand for certain winter season products started slightly later than last year. Against this backdrop, we found the overall picture in the report to be relatively neutral and have made only marginal changes to our overall forecast for the coming years. We therefore reiterate our price target of EUR 16.5 and Accumulate recommendation on the stock at what we believe is a moderate valuation. The company is also well positioned to continue creating value through acquisitions as part of its growth strategy.

Product sales growth slightly below our expectations

Relais' Q3 net sales increased by 7% year-on-year to around 75 MEUR, slightly below our forecast. In the larger Technical Wholesale and Products business, revenue growth was slightly below our forecasts due to factors such as the late start of the winter season. At the same time, Commercial Vehicle Repair and Maintenance continued to grow quite briskly organically and, according to the company, the Raskone chain increased its market share in Finland. We believe this reflects the fact that the industry is looking for cost savings, which Relais' brand-independent workshops offer. As a result of a slightly below-forecast top line, Q3 EBITA came in at 9.1 MEUR, missing our forecast slightly, but overall there were no surprises in the cost structure. The slight EBITA miss was offset on the bottom line by net financing expenses that were slightly below our forecast, with the difference explained by FX gains. Adjusted for acquisition-related amortization, Q3 earnings per share were EUR 0.30.

Only modest revisions to our forecasts

As usual, Relais has not provided any numerical guidance for the fiscal year 2024. Overall, we believe that the company's demand environment has remained good and in the short term, the key uncertain variable in the winter season is weather conditions, which can swing demand one way or the other. We have made relatively minor changes to our near-term operating forecasts, slightly lowering our Technical Wholesale and Product revenue forecasts. This has also slightly lowered our operating profit forecasts (2025e EBITA -5%), but further down the P&L this is offset by our slightly lower net financing expense forecast due to lower interest rates. As a result, the overall changes in the projections for 2024-2026 remain very modest. With growth boosted by favorable winter conditions in early 2024, we expect Relais' revenue and earnings to decline organically in 2025. However, the company has financial reserves to continue inorganic growth, which is also in line with the company's strategy. As a result, the acquisitions we consider highly likely could change the outlook for earnings growth in the near term.

Valuation remains attractive

On our forecasts, the P/E ratios (adj.) for 2024-2025 are 12x and the adjusted EV/EBITA ratios are 10x and 11x. In our view, the absolute valuation multiples for the coming years are on the favorable side. The stock is valued at a slight discount to its industry peers, while the stock is valued at a significant discount to the serial consolidator peer group. In our view, a reasonable level of valuation lies somewhere in between these peer groups, so we believe that relative valuation supports our view of moderate valuation. The value indicated by our cash flow model is EUR 16.3, which we consider to be a valid benchmark for the valuation of the existing business. In addition, we believe investors have a positive expected value from the value creation of the company’s acquisition strategy. Overall, we consider the stock to be attractively valued on a number of valuation metrics.