Prime Transaction: Sphera and MedLife - among the best results from the BSE; Electrics and TTS - poor results

Sphera Franchise Group (SFG) continues to benefit from the good context of the market in which it operates and MedLife (M) improved its financial results from the weak level they had reached in the second quarter of 2023, the same happened with Bittnet Systems (BNET), according to an analysis report of Prime Transaction, which can be found in the attached document.

On the other hand, Electrica (EL) and Transport Trade Services (TTS) both had poor results, the first with a shift to a quarterly loss, and the second with a drop in profit to around 10% compared to the level of the similar period of of 2023. One United Properties (ONE) also underperformed, but mainly due to a negative base effect, according to the report signed by Marius Pandele.

• Sphera Franchise Group - high profit growth with higher margins than the full year 2023

Sphera Franchise Group's profit margins continued to increase in the second quarter of the year, even though revenue growth was slower than in the first quarter, according to Prime.

Restaurant sales increased by 3.76% to 374.1 million lei in the second quarter of 2024, after a 9.21% increase in the first quarter. The increase came again this time mainly from KFC restaurants, with an increase of 15.1 million lei (+4.85%), while Pizza Hut brought a decrease of 2.1 million lei (-7 .56%), and Taco Bell a small increase of 0.5 million lei (+2.57%). The group's operating expenses grew at a lower rate than revenues.

The net profit of Sphera amounted to 18.5 million lei, in the second quarter of the year, double that of the period April-June 2023, of 9.2 million lei.

"The prospects remain good, and by the end of the year it should be expected that the fiscal framework will remain stable, eliminating one of the biggest risks to SFG's business. Normally results in the second semester should be above those of the same period of the previous year," according to the Prime report.

• MedLife - another good quarter for the private medical operator, with both revenue and profit margins improving

The trend seen in the previous two quarters continued for the healthcare provider, with revenues increasing this time in line with profit margins, the report said.

Revenues from contracts with customers had a higher percentage increase than in the first quarter of the year, by 23.66%, up to 663.8 million lei, in the second quarter of 2023. Comparatively, in the first quarter, the revenue growth had been 22.13%. Both percentages are in the area that the company has become accustomed to in recent years.

Operating expenses increased in turn, but at a slower pace than revenues, respectively by 109.2 million lei, compared to 123.47 million lei.

"Things seem to have taken a positive turn, with revenue growth no longer coming at the expense of higher human and material costs, as has been the case so far in the post-pandemic period. Even so, it is hard to believe that we will reach results close to those of 2020 and 2021 in the near future," according to Prime.

• Electrica - shift to quarterly net loss as a result of base effects on the revenue side

After in the first quarter of the year higher distribution tariffs helped to significantly improve the financial results for Electrica, in the second quarter of 2024 they were no longer enough to compensate for the decrease in revenues in the supply segment.

Revenues from the group's main activities fell by 15.2% to 1.96 billion lei in the second quarter of 2024, a larger decline than the 10.46% decline recorded in the first three months of the year. Most of the decrease came, as happened in the first quarter of the year, from the electricity and natural gas supply segment, with a minus of 337.4 million lei, from 1.65 billion lei to 1.31 billion lei (-20.46%), considering only revenues from transactions with external customers.

The negative base effect on the revenue side was partially covered by a positive base effect related to electricity, gas and purchased goods expenses, which rose from 2.1 billion lei in the second quarter of 2023 to 1.25 billion lei in the second quarter of 2024. For the second quarter of the year, Electrica recorded a loss of 25.6 million lei, compared to a profit of 185.4 million lei in the same period last year.

"Even for the second half of the year, things would not be expected to improve compared to the similar period in 2023, with the potential for negative base effects still existing. The net profit recorded in 2023 was very high compared to the years before the COVID pandemic, and its maintenance is unlikely in the absence of exceptional events," the report states.

• Transport Trade Services - again big declines for revenue and profit due to lower demand for services from Ukraine

The second quarter of the year coincided with the second quarter in a row in which Transport Trade Services' results have worsened significantly compared to the same period last year, as some of the cyclical elements that propelled its results after the start of the Ukraine war have disappeared.

The group's revenues continued to decrease, up to 187.5 million lei in the second quarter of 2024, (-29.27%), a rate of decline higher than that of the first three months of the year, when revenues decreased only by 21.89%. And this time the reason for the decrease is the negative dynamics of the demand for logistics services from the direction of Ukraine, whose exports of agricultural products have started to return to traditional routes.

The operating profit had a considerable decrease, of 89.87%, from 77.1 million lei to 7.8 million lei, while the net profit decreased by 91.99%, from 65.8 million lei in the quarter the second 2023 at 5.28 million lei in the second quarter 2024.

"It would be difficult for the rest of the year to look different from the first part, at the moment the risks for Ukraine's traditional transport routes are limited. Moreover, unless significant changes occur, it is possible that TTS will also lose some of the volume of activity it had before the war on the mineral products side," according to the report.

Other companies analyzed by the Prime Transaction team in the report are One United Properties and Bittnet Systems.