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.
Analysis of the numbers, business, margins, growth, and strategy
In recent years, the concessions sector, primarily dependent on airports, has seen some volatility due to the loss of 60% of Barcelona airport in 2018, the impact of IFRS 16 in 2019 (which doesn’t affect the business but affects reporting – especially EBITDA), and the effects of the Covid pandemic in subsequent years. Thanks to the growth from new concessions in Madrid and Lanzarote, the addition of new units in Malaga, and the return to 2019 traffic levels (which hasn’t yet happened at Madrid and Barcelona airports, unlike in Portugal – where they are on average 16% higher than in 2019.), it is expected that this sector will grow by 10-20% in the next two years.
Note: The AENA effect only applies to Spanish airports and not to those in Portugal.
In the Counters segment, the Burger King brand had the highest margins historically, so we anticipate a slight decrease in this segment compared to historical levels. Besides Burger King, Ibersol has been focusing on KFC, particularly in Portugal, where it has the majority of its units (increasing from 22 to 56 units over 6 years). In 2019, they opened the first KFC in Spain, and if the purchase of the 31 units in Spain goes through this year, revenues should exceed €100 MM in a normalised environment. Additionally, the opening of 70 Pret a Manger units (a brand with a strong reputation, at least in the UK) throughout the rest of the decade looks promising in this sector.
Finally, the restaurant sector, which we consider to be the most stagnant of all, with many franchise closures, is almost exclusively dependent on Pizza Hut, which is present in Portugal (with only 3 restaurants in Spain out of 109). Here, we assume little growth and EBIT margins between 4-5%.
What makes us think it could be a good investment?
The management’s capital allocation strategy is fantastic, and throughout all these years when they have been the major shareholders, they have consistently demonstrated it (CAGR growth of 9% over the first 15 years, the acquisition of EOG, effective management of the Burger King proceeds, balancing growth and rewarding shareholders, etc.).
The stock’s valuation is very attractive, and we’ll delve into more detail in the valuation section. It’s worth noting that the stock has only risen by about 10% since the announcement of the sale in August 2022, and the company has been actively repurchasing shares daily since June 2023, up to the maximum allowed.
There is potential for growth, with agreements in place with Pret a Manger to open 70 restaurants in Spain and Portugal over the next 10 years. Additionally, a decision needs to be made by the end of the year regarding the purchase of 31 KFC units in Spain, for which they have already invested €3 million in the company Medfood.
The management has a significant ownership stake, currently holding 51% of the company, which is approximately €148 MM, roughly 100 times their combined salaries.
The company has a net cash position, with €127 MM in net cash as of the end of 1H23 (excluding lease liabilities). If we consider the capital leases for the next 15 years (average duration), it would still have €45 MM in net debt.
What do we like less?
Lack of exclusivity for their franchised restaurants – Other companies analyzed here (like Arcos Dorados) have guaranteed by contract the exclusivity to open restaurants of their brands (in this case, McDonald’s) in the country. Something that doesn’t happen in the case of Ibersol.
Quality of their brands, really, once Burger King is sold, the remaining brands (perhaps with the exception of KFC, which is the most well-known) are not top-tier. Nevertheless, we believe that Pret A Manger and KFC expansion are the correct choices for the imminent future
Consumption in restaurants is directly linked to GDP evolution. It’s likely that in the coming months, there will be a decrease in demand while there is still inflation in raw materials, and it may not be possible to pass on the entire increase in food costs to the customer, directly affecting margins (rising food costs) and economies of scale (less volume), which we expect to last for several quarters.
The company’s capital allocation during the period it has been on the stock market has been commendable. However, the two individuals at the helm are 71 and 76 years old, so there is a risk of both succession (that the transition may not work well) and that they end up selling the business to a third party without the full value materializing (after the sale of Burger King, they sold 10% of the business to retain 51%). We consider it normal to cash out after such movements, but there is also the possibility that this event (Burger King was the crown jewel) could prompt them to reconsider their exit strategy.
Impact of the minimum wage increase: The company has been experiencing this in recent years, and there is discussion in Spain about the option of increasing it again.
Low liquidity and a small free float: We don’t particularly dislike this, as we believe it’s where the best opportunities are. However, when evaluating them, it’s important to always consider this in the multiples applied.
Financials & Quick valuation
As we have discussed earlier, analysing Ibersol presents considerable complexity due to the limited comparability and stability of its financial numbers, primarily due to changes in the IFRS16 accounting standard, which impacts operating and capital leases. This mainly affects European companies where rent payments represent a significant percentage of revenue. When these lease expenses are no longer considered as an expense in the income statement but are treated as amortisation, EBITDA appears considerably higher. Additionally, the impact is not linear, as interest has a different effect in the early years of the lease compared to the later years.
To address these challenges, you have conducted an analysis using Free Cash Flow to Enterprise Value (FCF/EV), breaking down each factor (EBITDA, Debt, FCF) to eliminate this effect. Given the limited historical data due to various factors (including COVID-19, the sale of the main brand, new airport concessions, and changes in capital leases), you have made several assumptions, such as normalising capital expenditures and leases. These assumptions have led to a broader range of valuation than desired, but the conclusion remains similar. You plan to refine the valuation as new data becomes available in this “normalised” environment.
Your primary assumptions include a slowdown in demand and margin impact in the coming quarters, the growth of the concessions segment becoming the largest sector, and continued investment at a pace similar to previous years (excluding what is allocated to Burger King), which is higher than the capital expenditure in 1H23.
With these assumptions in mind, and please consider this as indicative, your valuation range is around €8.5 (a 22% potential upside from the Friday closing price)