Sphera: Like a bat out of hell (HOLD - initiation of coverage)
We initiate coverage of Sphera Group (Sphera) with a HOLD recommendation and a 12M price target (PT) of RON 31.4/share. Sphera is the second-largest, but fastest-growing restaurant chain in Romania. The company has operated under the KFC and Pizza Hut banners from the early-1990s, and launched Taco Bell restaurants late last year. We see Sphera’s business model as both very efficient, with its ROE averaging at 72% in 2015-17PF, and highly scalable. We expect Sphera to deliver 2017-20E sales and recurring EBITDA earnings CAGRs of 26% and 29%, respectively. Following the 20% share price dive post the disappointing FY17 numbers release, we see the stock trading at a 2018E EV/EBITDA of 14.0x, in line with both its regional and Western peers. In light of the superior growth prospects on the one hand, and the corporate governance/visibility issues on the other, we see such a valuation as fair.
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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