AmRest: Covenants limbo (stays BUY)
We keep our BUY rating on AmRest, with a new price target (PT) of PLN 36.7/share (from PLN 46.8). With the share price down c.50% ytd, the stock is lagging both its global restaurant peers and the regional retailers. At the same time, we expect the core quick-service restaurant (QSR) segment to recover by the year-end, and the consolidated EBITDA to reach pre-COVID 19 levels by 2022E. With leverage of 3.6x at end-1Q20, however, AmRest lacks the balance sheet to take advantage of the current market turmoil to accelerate expansion. We also estimate EUR 290m of additional debt needed to finance even its limited capex plans by 2023E. Finally, we see operating in crisis mode for a number of quarters as largely suboptimal. Therefore, we believe AmRest should follow in CCC’s footsteps and issue the 37m shares agreed at the June 2018 GSM. While this could be partially dilutive, it could unlock organic and inorganic growth, and take the company to another level, in our view.Amrest Holdings SE is a Spain-based company active in the restaurants and bars sector. The Company's core activity is operating Kentucky Fried Chicken (KFC), Pizza Hut, Burger King and Starbucks restaurants through its subsidiaries in Poland, the Czech Republic, Hungary, the Russian Federation, Serbia, Croatia, Bulgaria, Spain and France, on the basis of franchises granted, and Applebee's in the United States. Additionally, in Spain and France the Company operates its own brands La Tagiatella, Trastevere and il Pastificcio. It also operates PizzaPortal.pl, an online portal for ordering food from various restaurants. The Company operates through subsidiaries, such as AmRest Sp z o o, AmRest sro, AmRest doo, AmRest Adria doo, Blue Horizon Hospitality Group PTE, AmRest TAG SL, SC Marinopoulos Coffee Company III Srl and Marinopoulos Coffee Company Bulgaria EOOD, among others.
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