Translation: Original published in Finnish on 2/14/2025 at 6:20 am EET.

Relais' broad-based organic growth in Q4 exceeded our expectations. Compared to last year's exceptionally cold winter, the mild weather in 2025 will make it difficult to achieve growth in the first part of the year, but overall we expect the company to continue its good operational performance in the future. We believe Relais has a strong track record of disciplined execution of its acquisition-driven strategy, which positions the company well to continue to create shareholder value through moderately valued acquisitions. We believe that the low valuation of the stock now provides a good buying opportunity. Therefore, we reiterate our EUR 16.5 target price and raise our recommendation to Buy (was Accumulate).

Organic growth was robust

In Q4, Relais’ revenue grew by 12% to 90.7 MEUR, exceeding our 87 MEUR estimate. The estimate beat was driven by broad-based organic growth (9%), which was above our expectations. Relais' Q4 EBITA amounted to 10 MEUR, exceeding our forecast of 9.3 MEUR on a revenue-driven basis. With both depreciation and financial expenses exceeding our forecast, Q4 EPS adjusted for goodwill amortization was around our forecast of EUR 0.44. Although the proposed dividend of EUR 0.5 was higher than our expectations, EUR 0.2 of the dividend will remain payable at the end of 2025 at the discretion of the board of directors. In our assessment, this is a legitimate way for the company to maintain flexibility for acquisitions.

Accelerating the pace of acquisitions

In line with its guidance policy, Relais did not provide guidance for the financial year just started, but the company expects market demand to remain stable in 2025. The company's long-term target for the financial year 2025 is a pro forma EBITA of 50 MEUR, including the EBITA generated by the businesses acquired during the financial year. Our forecast for Relais in FY'2025 is 34 MEUR, which would require not only excellent operational performance but also an acceleration of the acquisition pace to reach this target. We estimate that the capital available for acquisitions under Relais' current facilities agreement will be around 50 MEUR by the end of FY'2025, taking into account the dividend payment and our estimated cash flow from operations in FY'2025. Thus, we estimate that achieving this target will require additional debt financing, which does not appear to be an insurmountable challenge given the company's operational track record, current gearing and increasing debt capacity from inorganic growth. The company has emphasized in its commentary that shareholder value is a top priority in M&A, and we also see good evidence of value-creating acquisitions by Relais. These factors reinforce our confidence in the company's ability to allocate capital. 

Low valuation and value-creating strategy a good combination

According to our forecasts, the P/E ratios adjusted for goodwill amortization for 2025-2026 are 11x and the EV/EBITA ratios are 10-9x. In our view, the absolute valuation multiples for the coming years are favorable. 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 low valuation. The value implied by our cash flow model is EUR 16.5. We think the company has the potential to create significant value through its acquisition-driven strategy, which we believe is starting to show convincing evidence of working. We therefore believe that the low valuation level offers a good opportunity to jump on board the share.