AmRest: Nice to mEAT you
We initiate our coverage of AmRest with a BUY recommendation and FV of PLN 515.4. We like AmRest’s growth strategy, which is based on: 1) organic growth; 2) M&A; and 3) the rising popularity of e-commerce. We assume the company will meet its opening targets and will add some restaurants via M&A and that at the end of 2018E/19E AmRest will operate 2k/2.4k restaurants, respectively. We think the rapid pace of expansion will leave its mark on profitability and forecast an EBITDA margin of 11.7%/12.2% in 18E/19E, which is significantly lower than the company target of 15%. We forecast optimization costs and expansion in the digital segment to burden reported EBITDA, which will also be affected by growing employment costs. However, despite this we believe the stock is undervalued because its 2017-20E EBITDA CAGR of 25% is well above that of its international peers, while on EV/EBITDA it trades at a discount of 2%/14%/24% in 18E/19E/20E, respectively.AmRest is a holding company. Through its subsidiaries, Co. is an international fas-foods and casual dining restaurant operator in Central and Eastern Europe. Co. has been building a portfolio of well recognized power brands such as KFC, Pizza Hut, Burger King, Applebee's and Starbucks based on solid franchise and joint venture partnerships. Co. owns La Tagliatella brand which is being developed as Co. operated restaurants as well as franchised stores. Co. operates almost 700 category Quick Service and Casual Dining restaurants. Co. is based in Wroclaw and operates in Poland, Czech Republic, Hungary, Russia, Bulgaria, Serbia, Croatia, Spain, France and the United States.
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