LHV Institutional 'Virši Initiation of Coverage, December 7th, 2021'

* AS Virši-A (VIRSI LR) is the largest and fastest-growing domestic fuel trader in Latvia, operating an expanding network of filling stations combined with convenience stores. From its foundation until its initial public offering (IPO), Virši has been fully controlled by domestic capital, being directly owned by five private persons, who still maintain their skin in the game. Apart from traditional fuel types, considering the changes in regulations and market demand, the Group is actively developing the sales infrastructure for alternative fuel types, including CNG as well as electric charging points. Virši plans to enter the next stage of growth, envisaging rapid expansion of its station network, accompanied by the development of alternative fuel segments. Virši raised EUR 7.8m in gross proceeds from the IPO, followed by the admission to trading of the shares on the Nasdaq Baltic First North alternative market on November 11th.
* We have approached the valuation of Virši using a combination of the income and market approaches. For the income approach, we used the Discounted Cash Flow model. For the market approach, we used a peer group valuation, which considers several peer group trading multiples for 2021-2023E. We see the income approach as more suited for the valuation of Virši and assigned a 60% weight to DCF-based valuation in the total value, leaving the peer valuation weight at 40%. Overall, we initiate the coverage on Virši with the fair value range (FVR) at EUR 5.50-5.90 per share. Using the mid-point of our FVR and our forecasts for 2022, the Group would be valued at the following 2022E multiples: P/E – 16.3x, P/B – 1.6x, and EV/EBITDA – 9.9x, with the respective ratios declining to 13.3x, 1.5x, and 8.6x by 2023E. The key risk factors to our valuation include a deterioration of Latvia’s macroeconomic environment, slower than the projected expansion of the station network and revenues, and weaker than anticipated margins for its core operating segments.
* This report contains a full set of financial forecasts and is useful for gaining an initial insight into the company. Please also refer to the tables and charts in the attachment.