Sphera Group: out of the shadows (stays BUY)

We reiterate our BUY rating on Sphera Group (Sphera), with our 12M price target (PT) upped to RON 41.4/share (from RON 26.9/share). For the first time since its IPO in 2017, Sphera has moved out of the shadows and is trading at our 2024E EV/EBITDA of 7x, at a c.30% premium to its closest local peer, AmRest (BUY, PT PLN 28.1). We see this premium as fully justified. First, while AmRest has diluted its CEE exposure with expansion into the continuously troubled markets of Western Europe and China, Sphera has kept its direct exposure to the healthier CEE core. We expect Sphera to grow its sales at a 2023-26E CAGR of 10%, vs. 7% for AmRest. On top of this, we expect Sphera’s pre-IFRS 16 EBITDA margin to outperform AmRest by 70-90bps, which results, together with lower D&A charges and a stronger balance sheet, in almost a 2x higher net margin, in 2023-26E. Consequently, we see Sphera as able to outgrow AmRest, still distributing 100% of its profits to shareholders (a 2024E yield of 5%) and maintain its superior ROE (64% in 2024E). Overall, we see Sphera’s risk/reward profile as attractive, with the DDM and AmRest’s multiples providing downside protection, the DCF implying room for further growth, and the Western peers’ multiples painting a blue-sky scenario.