On Tuesday, Jefferies initiated coverage on GPS Participacoes (GGPS3:BZ), a prominent business services platform in Brazil, with a Buy rating and a price target of R$20.00. The firm highlighted GPS's position as a market leader in providing a range of services including security, indoor logistics, integrated facilities, maintenance, and industrial services.
Since its initial public offering in 2021, GPS has expanded significantly, acquiring over 20 companies and adding more than R$8 billion in revenues. The integration process for these acquisitions is notably efficient, taking an average of 124 days for systems integration. The pre-synergies acquisition multiples range from 5.5x to 6.0x EBITDA, which are reduced to 3.2x to 3.3x post-integration.
Jefferies pointed to GPS's ambitious growth strategy, aiming for a 20% compound annual growth rate (CAGR) in sales, driven by a combination of organic growth and further acquisitions. The company also maintains resilient profit margins, with an EBITDA margin between 10-12%, and is expected to generate superior returns with an approximate 20% return on invested capital (ROIC).
The firm also emphasized GPS's strong cash flow conversion, which is over 80%, and a balanced sheet with a net debt to EBITDA ratio projected at 1.7x for 2024. According to Jefferies, the current market valuation of GPS Participacoes does not accurately reflect the company's high-quality growth prospects and its status as a premium quality compounder.
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