Digital Expansion And Multi Brand Platform Will Drive A Powerful Long Term Upswing

Catalysts

About Zamp

Zamp operates and scales leading quick service restaurant brands across Brazil through a multi brand, multi format, and increasingly digital platform.

What are the underlying business or industry changes driving this perspective?

• The rapid expansion and integration of four global brands, including the recent addition of Starbucks and Subway, is transforming Zamp into a diversified restaurant platform. This can allow the company to compound system sales and fee based revenue even if one banner faces a softer cycle, supporting sustained top line growth and more resilient earnings.
• Accelerating digital adoption, with more than half of sales already digital and strong momentum in Totem, delivery and the mobile app, is structurally lifting average ticket and improving order flow efficiency. This should drive higher revenue productivity per store and expand EBITDA margins over time.
• Nationwide coverage across all regions and formats, from malls and in line stores to rapidly scaling freestanding and drive thru concepts, is positioning the company to capture rising out of home consumption and convenience demand. This supports continued unit growth and long term system sales leverage.
• Operational turnaround successes in Popeyes, Starbucks and Subway, including better product availability, stronger campaigns and a renewed focus on service and NPS, indicate significant room for further same store sales gains and mix upgrades. These factors should translate into faster revenue growth and improving net margins.
• Disciplined capital allocation with technology focused CapEx, remodeling that lifts sales, and a manageable leverage profile with long dated maturities is expected to convert growing EBITDA into stronger free cash flow. This supports deleveraging and potential earnings accretion from reinvestment or shareholder returns.

Assumptions

This narrative explores a more optimistic perspective on Zamp compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Zamp's revenue will decrease by 3.1% annually over the next 3 years.
• The bullish analysts are not forecasting that Zamp will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Zamp's profit margin will increase from -3.5% to the average BR Hospitality industry of 9.9% in 3 years.
• If Zamp's profit margin were to converge on the industry average, you could expect earnings to reach R$454.5 million (and earnings per share of R$1.14) by about December 2028, up from R$-179.1 million today.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 24.5x on those 2028 earnings, up from -7.8x today. This future PE is greater than the current PE for the BR Hospitality industry at 15.0x.
• The bullish analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 25.89%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Persistent inflation in beef and other key inputs could make it difficult for Zamp to keep raising menu prices without eroding traffic, which would cap same store sales growth and compress gross margin and net margins over time.
• The integration of Starbucks and Subway, which drove a large part of recent growth, may prove more complex and costly than expected, leading to prolonged SG&A pressure, weaker operational efficiency and lower EBITDA and earnings growth than implied in the bullish case.
• Heavy reliance on digital channels such as Totem, delivery and the app may face saturation or increased competitive intensity from marketplaces and other QSR players, limiting further ticket uplift and slowing revenue and EBITDA expansion if incremental digital gains become harder to achieve.
• Elevated leverage at 2.5 times net debt to EBITDA combined with higher financial expenses could constrain investment in remodeling and new formats through the cycle, slowing long term unit growth and pressuring free cash flow and earnings if deleveraging does not progress as planned.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Zamp is R$14.0, which represents up to two standard deviations above the consensus price target of R$7.41. This valuation is based on what can be assumed as the expectations of Zamp's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of R$14.0, and the most bearish reporting a price target of just R$3.23.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be R$4.6 billion, earnings will come to R$454.5 million, and it would be trading on a PE ratio of 24.5x, assuming you use a discount rate of 25.9%.
  
• Given the current share price of R$3.5, the analyst price target of R$14.0 is 75.0% 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.