Premium Airline And Event Catering Expansion Will Drive Long Term Upside Potential

Catalysts

About DO & CO

DO & CO is a premium hospitality and catering group focused on airline catering, international event catering and high end restaurants, lounges and boutique hotels.

What are the underlying business or industry changes driving this perspective?

• Scaling with premium focused global airlines such as Turkish Airlines, Delta and leading Asian carriers is set to lift high margin airline catering volumes as long haul traffic and demand for differentiated in flight service grow, supporting revenue and EBIT expansion.
• Structural growth in global sports and entertainment, particularly Formula 1 and large arena events, is driving higher guest numbers per venue and more race weekends, which should enhance operating leverage in Event Catering and raise divisional EBIT margins.
• Ongoing international air travel recovery, coupled with DO & CO's strong win rate in tenders at hubs like Istanbul, Heathrow and Madrid, positions the company to add new contracts on top of stable base demand, accelerating top line growth and free cash flow.
• Investment in the new Istanbul mega kitchen and the DO & CO academy to train 2,000 additional staff is building a scalable, standardized platform that can support several hundred million euros of extra sales with attractive incremental margins and earnings growth.
• Rapid margin improvement in Restaurants, Lounges and Hotels, together with rising brand awareness from award winning boutique hotels and flagship outlets, is increasing the share of resilient B2C revenue and should lift group EBITDA margin and net income over time.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming DO & CO's revenue will grow by 8.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.2% today to 5.6% in 3 years time.
• Analysts expect earnings to reach €171.4 million (and earnings per share of €15.03) by about December 2028, up from €101.7 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €258.5 million in earnings, and the most bearish expecting €153.9 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 17.8x on those 2028 earnings, down from 20.6x today. This future PE is lower than the current PE for the GB Commercial Services industry at 20.6x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.92%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The long term shift toward cost conscious travel and yield management at major airlines, particularly in the U.S., could limit how much carriers are willing to pay for premium catering, forcing DO & CO to concede on pricing and eroding revenue growth and EBIT margins over time.
• Heavy strategic dependence on Turkish Airlines, U.S. carriers and Formula 1 means any downturn in air traffic, lower demand for premium cabins, or waning interest in global sports spectacles would directly pressure volumes and utilization, reducing revenue and slowing earnings growth.
• Persistent foreign exchange headwinds in key markets such as Turkiye and the U.S., where revenue growth in local currency is already being diluted when translated into euros, could continue to mask operational progress and cap reported top line expansion and net profit.
• The plan to add and train 2,000 new employees in advance of anticipated contracts relies on sustained demand and successful tender wins, and if new business ramps more slowly than expected, fixed personnel and training costs would rise faster than sales, compressing EBIT margin and net income.
• Management’s ambition to reach EUR 3 billion in revenue and double digit EBIT within 2 to 3 years assumes continued contract wins, stable macro conditions and no major event cancellations, and any shortfall in new business, event disruption or sector slowdown would make these targets unrealistic, undermining investor confidence and putting pressure on the share price, revenue trajectory and earnings growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of €233.59 for DO & CO based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €266.0, and the most bearish reporting a price target of just €213.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be €3.0 billion, earnings will come to €171.4 million, and it would be trading on a PE ratio of 17.8x, assuming you use a discount rate of 5.9%.
  
• Given the current share price of €190.6, the analyst price target of €233.59 is 18.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.