Sphera Group: waiting for redemption (BUY - reinitiation of coverage)
We reinitiate coverage of Sphera Group (Sphera) with a BUY rating and a 12M price target (PT) of RON 26.9/share. Sphera is the largest restaurant chain in Romania, with a presence in Moldova and Italy, with 177 restaurants under the KFC, Pizza Hut and Taco Bell banners. On its way to recovery from the COVID-19 pandemic impact, we expect 2022-25E sales and EBITDA CAGRs of 12% and 17%, respectively, both close to the 10/14% we forecast for AmRest. At the same time, we find Sphera virtually debt free, with end-2022 leverage of 0.4x, and sticking to its policy of 100% dividend payouts. In this light, we do not see the company’s valuation, at a 2023E EV/EBITDA of 5.1x and a P/E of 10.8x, 14/53% below AmRest (65/59% below the Western peers’ medians), as justified, due to Sphera’s inferior size, liquidity, and corporate governance track record. We also see the dividend yield ramping up from 4.7% in 2023E to 12.0% in 2025E as an attractive entry point. In our view, this valuation gap should narrow, with Sphera getting more traction with the investor community and rebuilding its corporate governance profile.
WOOD & Company is the leading investment bank in Emerging Europe. Founded in 1991 and head-quartered in Prague, our footprint spans the region and touches investors around the globe.
A pioneer in Emerging Europe, WOOD executed many of the first CEE equity trades and landmark investment banking transactions. Our electronic trading platform was the first in the region, and remains the best. We are continually expanding our relevance and reach in these ever-evolving markets.
Our equity market share reflects our stature: 7% in Warsaw, 20% in Bucharest, 16% in Hungary, 40% in Prague and 5% in Vienna. Our distribution is unparalleled, with the largest salesforce in the region, servicing a uniquely diverse investor base.
We couple local expertise with a truly international perspective. With offices on the ground in the region, and in key financial hubs such as London and Milano, we are never far from our clients and we remain at the forefront of what’s afoot in the CEE emerging and frontier landscape.
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