Erste raised the price target for the Sphera share to 47.5 lei, 20% above the current market quote

Erste Grup raised the price target for Sphera Franchise Group (SFG) shares to 47.5 lei, over the next twelve months, above the previous target of 42.3 lei, maintaining the Buy recommendation, according to the latest analysis report signed by Caius Râpanu, published on the BVB Research Hub portal.

It is a price target of 20% above yesterday's 16:00 Sphera share price of 39.5 lei.

"We update the target price for Sphera to 47.5 lei per share, taking into account the company's latest results, risk cost, efficiency and development profile, maintaining the Buy recommendation," the report states.

Although second quarter 2024 comparable restaurant sales growth (which excludes new restaurant sales) fell below multi-year averages, Erste believes that innovation, creative and well-targeted marketing campaigns will help the company - as in the past - to take advantage of seasonal trends and help increase revenue and profitability.

The analysis notes positive dynamics in terms of food costs, with Sphera management managing to take advantage of the current disinflationary environment and capitalize on its negotiation and sourcing capabilities. Although labor costs are largely out of management's control, Erste considers staff retention much more important, which inevitably has an additional cost but also comes with additional benefits.

"Therefore, our outlook on Sphera remains unchanged. The fundamentals remain, based on a combination of global brand strength, domestic market growth and management's marketing and cost control skills. We remain conservative on comparable sales growth (below inflation rate) and expense growth (above inflation rate)," the report said.

According to Erste, the dividend distribution, including the extraordinary dividend to be approved by shareholders, represents an additional incentive, without yet raising concerns about insufficient financing of the company, which has a solid balance sheet capable of supporting an increased debt level.

For the first six months of the year, Sphera Franchise Group reported revenue from restaurant sales of 740 million lei, 6% higher than in the first half of last year, while net profit amounted to 40.6 million lei, more than double compared to the one from January-June 2023, of 19.4 million lei.

For this year, Erste estimates that Sphera will achieve a net profit of 86.5 million lei, which will rise to 99.3 million lei in 2024 and 125 million lei in 2026, according to the report published on the BVB Research Hub portal.