Ibersol SGPS Analysis + 1H23 results (Kistos, Ecoener, Beneteau...)
Sunday 1st October 2023
Today, we are publishing the analysis of Ibersol and the 1H23 results analysis of Kistos, Ecoener and Beneteau
Ibersol is a small Portuguese company in the hospitality sector, where it primarily manages franchises of brands like KFC, Pizza Hut, Taco Bell, or Pret a Manger. It is well-managed, and the management is its largest shareholder (>50% shares). The recent years have been quite volatile due to several factors, with the most significant being the sale of its Burger King restaurants last year (for 80% of its EV at the time). The proceeds from this sale are being used for share buybacks, debt repayment, extraordinary dividend, and inorganic & organic growth.
Also, we analyse the 1H23 results of several companies we have talked about in the past or are peers of others we analysed
Kistos Holdings - O&G in the North Sea led by Andrew Austin, famous for achieving x42 return in its previous company (M&A legend) - As every year since its IPO, we will update the investment thesis in November -
Beneteau - French yacht manufacturer specialised in <20m segment - A bit of special situation that we will probably write about soon
Ecoener - Spanish Renewable Energy company (IPP) with 300 MW operative in Spain & LatAm - Mini thesis available on Substack
Additionally, last week, we shared the first of the four publications in our series of company valuations, where we explain step by step how to analyze companies using five different valuation methods, each illustrated with a practical example. The next installment is already in progress and will be released in the coming weeks.
For the next week, we will be sharing our monthly update, where we review the main macroeconomic and market events of September, the key events of the nearly 30 companies we cover (in our portfolio and watchlist), and our portfolio management.
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Results & events analysis + Portfolio management
Discussion of current topics and their implications/actionable related ideas
Analysis of the functioning of specific sectors (LNG industry, Offshore Drillers, Consumer Discretionary,…)
Last week, we launched a series of four publications about valuations, where we cover five different valuation methods (Comparable, Transactions / M&A, Discount Cash Flows, SOTP and Liquidation Value). For each of the methods, we choose a company / industry and carry out the process explaining it step by step. The series include a detailed DCF of The Italian Sea Group and other companies, and also benchmarks for entire industries such as luxury yacht, restaurants,..
What is Ibersol
Ibersol is a multi-brand operator in the hospitality business that operates its own brands as well as franchises in Portugal and Spain (it also has operations in Angola - a former Portuguese colony - . While it owns its own brands like Pans & Company (which it operates and franchises), the majority of its sales come from being a franchisee of brands such as Pizza Hut, KFC, and Taco Bell.
Since its IPO, Ibersol has been led by the same two people who orchestrated the MBO in 1997 (holding 60% of the shares during this period - more about this later). It is listed on the PSI-20, the primary Portuguese index, with the ticker symbol IBS and a market capitalization as of the end of September of €290MM
By its nature, the company had a significant impact during the Covid pandemic, where it had to raise €40 million in capital at €4 per share. Last year, it sold nearly 150 Burger Kings (in Portugal and Spain) to the private equity firm Cinven for €260 MM - 80% of its EV at that time - A year later, we see that the proceeds have been used for share buybacks, reducing debt, providing an extraordinary dividend, and potentially acquiring 31 KFCs before the end of the year. However, the market's reaction to the stock has been minimal.
Today, we want to thoroughly analyze this company to determine if there is an opportunity and how significant it is, or if, on the contrary, there are aspects that justify its current valuation. We discuss its current situation, examine its numbers, analyse its metrics by segments in detail, remove the noise to see the company as it is today, we provide the valuation of the company and our conclusion about Ibersol
The Burger King sale
Before analysing Ibersol, and as we will use their "continuing operations" or equivalent figures for all our calculations, it is important to explain the impact of the sale of Burger King, their main brand, last year.
Ibersol sold Burger King in November 2022 and received €244.5MM in cash plus an earn-out of €15.5 MM. Burger King was Ibersol's most well-known brand and generated the highest EBITDA margins. It leave Ibersol with a pile of cash lower business volume and the uncertainty about what they would do with that money.
As of today, almost a year after the transaction, the uncertainty surrounding what Ibersol would do with the money has largely been resolved. During this period:
It distributed an extraordinary dividend of €0.70 per share (paid in June 2023), totaling €29.2 MM.
Reduced debt (€83.4 MM in debt repayment + €16.6 MM associated with the Burger King sale operation).
Repurchased shares - up to 4,359,577 Ibersol ordinary shares, representing up to 10.29% - initiated in June and will continue until May 31, 2024.
Additionally, it canceled the shares it held in treasury - 3,640,423 as of May 26, 2023 (held in treasury).
Furthermore, Fergie acquired a 10.74% stake in the company from SGPS (a company owned by the CEO and Teixeira and Barbosa, who held 61.39% of the company), leaving STGP with the current 50.65% ownership.
Ibersol in numbers
Ibersol has consistently grown in the number of establishments, revenues, and EBITDA since the year 2000, with an obvious slowdown during the years 2009-2012 due to the financial crisis. However, in terms of quantity, its significant leap occurred in 2016 with the acquisition of Eat Out Group (owner of Pans & Company, RIBS, and Santamaría), increasing its number of locations from 377 to 504 and its revenue from 214 to 448 (in 2017, fully consolidated).
The recent years have been filled with events that make it more challenging to compare one to another ( we will delve into this in more detail later). In 2019, the impact of the new European accounting standard IFRS 16, the Covid pandemic in 2020 and 2021, the AENA law affecting its concessions sector (airports) in 2021, and the sale of Burger King, the crown jewel, to the private equity firm Cinven in 2022 have all played a significant role.
It's also important to consider the cyclicality of its business, with the 1st quarter being the weakest of the year and the 4th quarter being the strongest. Due to operational leverage, this is particularly noticeable in the margins, where there are significant differences between these quarters. In terms of volume, sales in the second half of the year typically represent around 60% of the annual total.
Ibersol has three segments: Restaurants, Counters, and Concessions. The Restaurants segment includes brands with dine-in and meal service locations. Counters mainly consist of fast-food establishments, and the Concessions segment includes stores at airports (8 in Spain and 5 in Portugal), train stations, service areas, and catering services.
By countries, Portugal represents 57% of the revenues, Spain 39%, and Angola 4% (after the sale of Burger King). Angola specifically has 9 KFCs and 1 Pizza Hut, but due to the significant currency depreciation and the size of Ibersol's business, we do not consider it in our valuation.
In terms of segments, thanks to the recovery in traffic ( Barcelona and Madrid still below 2019 levels) and new concessions (currently under construction at the Madrid and Lanzarote airports - the most recent tender won), the concessions sector is expected to become the most important of the three.