Upcoming Store Openings Will Expand Market Reach In Saudi Arabia, UAE, And Morocco

Key Takeaways

• Strategic expansions and digital enhancements aim to boost revenue, market share, and customer loyalty through improved customer experience.
  
• A focus on cost control and partnerships seeks to enhance operational efficiency and earnings despite geopolitical challenges.
  
• Geopolitical conflicts and financial volatility from currency fluctuations have severely impacted revenue and profitability, with no swift recovery in sight.

Catalysts

Operates in the out of home dining market in the Saudi Arabia, Kuwait, United Arab Emirates, Lower Gulf countries, North Africa, Kazakhstan, Iraq, Lebanon, and Jordan.

• Americana Restaurants is expanding its store portfolio with notable openings in strategic markets like Saudi Arabia, the UAE, and Morocco, which could potentially drive revenue growth and increase market share.
  
• The company is investing in digital enhancements including kiosks and a customer data platform to improve customer experience and engagement, potentially boosting revenue through higher transaction volumes and increased customer loyalty.
  
• Initiatives focused on value offerings and localized, market-specific menu innovations aim to increase transaction frequency and customer loyalty, likely stabilizing or increasing revenue and aiding in margin improvements as customer acquisition costs might decrease.
  
• A disciplined approach towards capital expenditure and strategic focus on cost control could potentially improve net margins by optimizing operational efficiencies amidst challenging geopolitical conditions.
  
• The company's ongoing partnerships and co-funded initiatives for customer acquisition could enhance earnings by reaching new customer segments and driving higher transaction volumes across its brands.
  

Americana Restaurants International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Americana Restaurants International's revenue will grow by 9.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.1% today to 9.1% in 3 years time.
• Analysts expect earnings to reach $257.0 million (and earnings per share of $0.03) by about February 2028, up from $150.2 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $187 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 44.6x on those 2028 earnings, up from 37.1x today. This future PE is greater than the current PE for the AE Hospitality industry at 23.7x.
• Analysts expect the number of shares outstanding to decline by 0.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 20.54%, as per the Simply Wall St company report.

Americana Restaurants International Future Earnings Per Share Growth

Risks

• The ongoing geopolitical conflict has continued to impact the business, resulting in a 15.3% year-on-year decline in revenue and an 18% drop in like-for-like sales, directly affecting the company's revenue and net income.
  
• Increased focus on value-oriented deals and promotions has led to a decrease in the average check size, impacting the overall revenue and profitability, as evidenced by the diluted net income margin.
  
• The implementation of UAE corporate tax and increased depreciation charges from new store openings have further strained net income, which fell by 54.3% year-on-year, indicating an impact on earnings.
  
• Currency fluctuations, particularly with the Egyptian pound and Lebanese lira, caused a $50 million revenue impact, adding financial volatility and affecting earnings.
  
• Slower-than-expected recovery from the geopolitical situation, with no hockey stick recovery anticipated, suggests prolonged challenges in regaining lost sales momentum, affecting future revenue and profit margins.

Valuation

• The analysts have a consensus price target of AED2.867 for Americana Restaurants International based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of AED3.49, and the most bearish reporting a price target of just AED1.86.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.8 billion, earnings will come to $257.0 million, and it would be trading on a PE ratio of 44.6x, assuming you use a discount rate of 20.5%.
  
• Given the current share price of AED2.43, the analyst price target of AED2.87 is 15.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.