Relais Q2'24: A record H1

Translation: Original comment published in Finnish on 08/15/2024 at 11:59 pm EEST

The Q2 report released by Relais on Thursday was better than we expected, with revenue and especially profitability exceeding our estimates. Against this backdrop, our raised profitability forecasts and a recent small acquisition, our estimates for this and next year increased. The stock valuation is not high, but we believe the recent price rise has dismantled the most blatant undervaluation. As a result, we raise our target price to EUR 16.5 (was EUR 15.0) but lower the recommendation to Accumulate (was Buy).

Organic growth and gross margin were the delights of Q2

Relais’ Q2 revenue grew by 16% to 74.3 MEUR exceeding our estimate. The acquisitions carried out supported revenue slightly less than we expected, so the forecast overshoot came from very strong organic development. We believe the growth was still supported by the favorable weather conditions of Q1’24, but Relais seems also to have increased its market share. Relais’ measures to improve the gross margin worked clearly better than we expected in Q2, which, together with higher-than-expected revenue pushed the EBITA of the period to 7.3 MEUR clearly above our 5.3 MEUR forecast. Reflecting the operational forecast overshoot, Q2’s adjusted EPS of EUR 0.22 also exceeded our forecast.

Earnings forecasts increased, but we expect revenue growth to calm down from the pace of H1

Relais has not provided numerical guidance for the current financial year in line with its guidance policy. Thanks to strong organic growth, partly due to favorable weather conditions in the beginning of the year (H1’24: +10%), market share gains and acquisitions made, our 2024 revenue forecast expects a 13% increase to 320 MEUR. However, we estimate that the demand situation in H1, supported by weather conditions, has been stronger than the average year, so we expect organic growth to be tight in 2025, especially due to the strong comparison period for H1. Achieved market share gains strengthen our confidence in the company’s competitiveness, but we wait for further proof before we are ready to include organic market share gains in our forecasts over the longer term. As a result, we expect organic revenue growth to stabilize in the next few years to the estimated growth of Relais' target market at around 3%. We included the small acquisition announced in July in our forecasts, which together with our increased gross margin forecasts raised our EBITA forecasts by 7-4% for 2024-2025.

We feel some of the undervaluation has been dismantled with the price rise

The P/E ratios (adj.) for 2024-2025 are 12x and the adjusted EV/EBITA ratios are 10x. In our view, the absolute valuation multiples for the coming years are on the favorable side. Compared to its business peers, the stock is valued at a discount of nearly 10%, whereas compared to the peer group of serial consolidators the stock is valued at a considerable discount We believe the justified valuation level can be found between these peer groups. The value indicated by our cash flow model is EUR 16.5, 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 valuation attractive based on different valuation methods, although we believe that the recent price increase has dissolved some of the undervaluation.