IBS.LS - Ibersol

[rolling]

 

Restaurant operating company based in Portugal which operates own brands and franchised brands in Portugal and Spain (including Pizza Hut, KFC and Burger King).

 

Growth story: 5 own restaurants in 1990 versus 502 in 2017.

 

Key Metrics:

EV/EBITDA~5,95

EV/EBIT~11.6

Market cap/FCF~10,7 (after all capex - including openings)

 

See attachment for a little wider presentation.

 

disclosure: This is currently my biggest position, but I might buy or sell at any time. Do your own research.

ibersol.pdf

[rolling]

An update:

Since I see Ibersol as a counpounder and I forgot to mention, my calculations for ibersol are for a Pre tax ROIC=22.4%. Post tax it would be around 16.6%, but it should be mentioned they will use tax bonuses whenever possible, thus boosting after tax ROIC. In fact:

 

http://www.jornaldenegocios.pt/empresas/detalhe/ibersol-quer-investir-46-milhoes-e-criar-933-empregos

 

This means 36 units and a new central kitchen and corresponding tax incentives (last year they got 4,1M with an expansion capex of 20,9M; as such 46M should grant around 9M in tax credits).

 

As such, they seem to continue seeking for growth and are likely to keep the reasonably high ROIC. A little bit of leverage should further increase returns on retained capital.

[rtvinvest]

Do you know what their contracts are like? (e.g. master franchise for certain country/end date)

 

Thanks

[rolling]

Do you know what their contracts are like? (e.g. master franchise for certain country/end date)

 

Thanks

http://web3.cmvm.pt/sdi/emitentes/docs/PC68065.pdf

 

Full 2017 annual report

 

The most explicit I found is on page 138 on intangibles.

 

"The group's main operating rights relate to the franchise rights paid to international brands at the opening of the restaurants operating under the brand: 20 years in the case of Burger King and 10 years in the case of Pizza Hut and KFC, which are renewable by others 10 years by option of the franchisee."

 

On the same page you can find some additional information regarding licences for site exploration.

 

Spain Airport operations aren't mentioned there, but there have been lots of contests on the last 1,5 years (just yesterday they got 6 licences to operate in Mallorca) so they are likely long term.

 

As far as I know, all Pizza Hut in Portugal are operated by Ibersol, and they have the right to convert all their Pizza Movil (own brand) in Spain to Pizza Hut (they are currently testing 3 locations already converted).

 

About burger king, BK is trying to expand quickly in Portugal, so other firms are expected to open some locations, since Ibersol will only open a decent chunk of them. However Ibersol is said to help in choosing locations, so it is expectable that no competition will arise while brand awareness should increase. Ibersol getting to open the expectable best locations would also be possible. Up until now I think all bk in Portugal are theirs..

 

Not sure about Kfc, but I think the case is similar to Pizza hut, but it is a much smaller operation, with only 22 locations in Portugal (but expanding).

 

[rolling]

1Q2018 results are out:

 

 

- EBITDA up 6% yoy (despite Angola - currency devalued 40% in the quarter while prices only increased 15%)

 

- Net income up 75% yoy (I estimate at 50% after adjusting for accounting changes and extraordinarily low taxes last year)

 

- net debt down 9.8M to 73.3M, despite 3,3M total investment (50% openings) in the quarter

 

 

Things went better than I expected.