AmRest: Losing steam (downgraded to HOLD)
We have downgraded AmRest to HOLD (from Buy), with a new price target (PT) of PLN 32.8/share (from PLN 36.7). The stock has been lifted by the markets’ recovery, but we are disappointed with the way the company has coped with the COVID-19 challenges. While we expected AmRest to leverage the global turmoil on the access to fresh equity for accelerated market shares expansion, the company has slashed its rollout plans and focused on cash preservation. Based on management’s guidance for 2020-23E, we expect an average net rollout of 82 restaurants, strongly below the run-rate of 359 outlets in 2016-19. On the one hand, this should allow it to minimise its start-up costs and deleverage below the 3.5x covenants level by end-2022E without any capital injection. On the other, however, we see the old growth story as gone. We expect a 2020-23E EBITDA CAGR of only 29%, even starting from the COVID-19 impaired base. Finally, we note the wave of key personnel departures, which is usually a warning sign. On a post-growth perspective, we see the company’s double-digit discounts vs. its peers’ median on 2021-23E EV/EBITDAs as justified.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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