News regarding the introduction of new taxes in Romania, as well as a special tax for Romanian banks, a solution similar to Italy and Hungary, has put the companies under pressure in Romania. At the same time, the discussion about the introduction of a 0.2% total assets tax for Slovenian banks also affected Slovenian listed banks.
Starting off with Romania, according to the Romanian Minister of Finance, there are discussions about the introduction of a 1% turnover tax for large companies, if the 16% tax amounts to less than 1% of the turnover. This is presented as a minimum tax that has to be paid in Romania. What is interesting about this tax is that it would be levied even if companies report a loss.
BET constituents impact (% change vs. closing price on Friday, YTD* % change)
Source: Bloomberg, InterCapital Research
*Hidroelectrica price change as of listing on BVB
Furthermore, discussions about the bank windfall tax are also being made, with a model similar to the one from Italy, where a 40% special tax was introduced, or Hungary and other member states that imposed extra windfall taxes on banks. As a result of both of these announcements, most of the BET constituents recorded decreases in share price yesterday, with MedLife declining the most, by 5%, followed by BRD at 2.7%, Banca Transilvania at 2.4%, BVB at 2.3%, and Aquila at 2%. The BET index itself declined by 1%. As a comparison, we also provided the YTD change (excl. Hidroelectrica), and as we can see, the majority of the companies actually recorded increases in share price, some of them significant.
Moving on to Slovenia, according to the media reports, Slovenia is to introduce a new tax on the total assets of banks, which will be introduced within the framework of the law on reconstruction and development. Even though nothing is yet official, the Slovenian Prime Minister commented that he expects the tax will amount to 0.2% of the total assets of the Slovenian banks, which stood at app. EUR 50bn, meaning that the tax will levy app. EUR 100m. The initial govt. proposal was for the tax to amount to 1-2% of the total assets, while the banks offered 0.1%.
As we mentioned, there is no draft for the law yet, and it would still have to pass the government and parliamentary procedure. However, if passed, the law would be in effect for five years. After this news broke out, the largest effect would of course be taken by NLB Ljubljana as well as N banka Ljubljana, and not the Group. According to the latest H1 2023 results, NLB Ljubljana’s assets stood at EUR 14.68bn, while N Banka’s assets stood at EUR 1.09bn. Taken together, this represents app. 30.7% of the total banking assets in Slovenia. As such, if the 0.2% tax is passed, it would mean that NLB would have to pay EUR 31.5m at the current asset levels.
The impact of the 0.2% tax on the Slovenian banks1 2
Source: Companies data, InterCapital Research
1 NKBM and SKB are consolidated under OTP
2 Data based on the latest available reports
In the coming period, according to our estimates, by the end of 2023, the total assets should amount to EUR 16.3bn, by the end of 2024 to EUR 17bn, by the end of 2025 EUR 17.8bn, and by the end of 2026, to EUR 18.7bn. if we were to apply the 0.2% tax on these estimates, it would mean that NLB would pay EUR 32.6m of tax in 2023, EUR 34m in 2024, EUR 35.6m in 2025, and EUR 37.4m in 2026.
The impact of 0.2% tax on NLB* (2023 – 2026, EURm)
Source: InterCapital Research estimates
Finally, looking at the impact on the market, NLB’s share price declined by almost 2.6%, closing at EUR 75.60 yesterday.
In H1 2023, SFG recorded revenue growth of 14.8% YoY, an EBITDA increase of 146.5%, and a net profit of RON 19.4m (H1 2022: RON -8.7m).
In total, the restaurant sales revenue amounted to RON 695.6m in H1 2023, representing an increase of 14.8% YoY. Growth was reported across all of the markets as well as brands in the Company’s portfolio. Breaking this down by regions, most of the revenue (86.3%, or RON 600.5m) was generated in Romania, followed by Italy (12.3%, or RON 85.3m), and the Republic of Moldova (1.4%, or RON 9.8m). In terms of brands, KFC recorded the largest revenue, at RON 595.9m (85.7% of the total), increasing by 15.4% YoY, followed by Pizza Hut at RON 59m (8.5% of the total), with an increase of 1.7%, and Taco Bell, at RON 40.7m (5.8% of the total), with an increase of 29.1% YoY.
Moving on, the Company noted that after a challenging 2022, restaurant expenses weight in sales decreased by almost 5 p.p. YoY, amounting to 91.3%. In terms of the restaurant expenses themselves, they amounted to RON 634.9m, an increase of 9.2% YoY. All the cost categories increased, with the main contributions coming from food and material costs (+7.2% YoY, to RON 232.8m), employee expenses (+15.2% YoY, to RON 163.3m), and this came as a result of the increase in payroll and employee benefits, but also due to a 4% increase in the number of employees. Rent expenses also grew, increasing by 13.2% YoY to RON 50.5m, due to the larger restaurant footprint and the variable structure of the rent contracts, which are tied to sales development. Royalties and advertising also grew, by 14.5% YoY, and 8%, respectively. Finally, other operating expenses amounted to RON 91.7m, a 3.1% increase YoY, due to the stabilization of third-party and utility costs, the largest contributor to this category.
Next up, there is EBITDA, which amounted to RON 52.3m, an increase of 146% YoY, supported by the faster revenue than expenses growth. SFG further notes that this was also supported by the correct pricing strategy besides the increasing sales volumes. As such, the EBITDA margin also improved, increasing by 4.47 p.p. and amounting to 7.53%.
In terms of the net financial result, it amounted to RON -5.2m, an 18% improvement YoY, as the financial expenses decreased by 7% and amounted to RON 6.2m, while the financial income increased by 191% YoY and amounted to RON 1m. Taken together, all of this led to a net profit of RON 25.2m, while in H1 2022 it was negative at RON 7.2m. This would also mean that the net profit margin turned positive and amounted to 3.62%, an improvement of 4.64 p.p. YoY.
Sphera Franchise Group key financials (H1 2023 vs. H1 2022, RONm)
Source: Sphera Franchise Group, InterCapital Research