Fulham Shore — Hungry for more

Fulham Shore — Hungry for more

Fulham Shore has hit the spot with a positive trading update, a forceful endorsement of post-pandemic growth opportunities and confirmation of its own resources and ambition. In the eight weeks to 15 August sales showed impressive resilience (up 8%+ on 2019) despite exposure (almost 25% of sites) to subdued city centres (sales down 41%) as well as continued restrictions in the first half of the period. Increasing site availability and extensive savings in rents and capital costs on COVID-19 fallout look set to return openings to 2019 levels (10 due this year) and in the medium term a step change in estate size (a further 150+ locations across the UK plus international franchising). A cash-generative model with strong finances (£3.5m net cash with £28m headroom) should back this ambition.

Richard Finch

Written by

Richard Finch

Analyst, Consumer

Fulham Shore

Hungry for more

Travel & leisure

QuickView

31 August 2021

Price

18p

Market cap

£111m

Share price graph

Share details

Code

FUL

Listing

AIM

Shares in issue

619m

Business description

Co-founded by David Page (executive chairman) in 2012, Fulham Shore operates 75 restaurants, mainly in Greater London and southern England. Its brands are Franco Manca (specialising in sourdough pizza) with 55 sites (c 75% of pre-pandemic EBITDA) and The Real Greek. The company listed on AIM in 2014.

Bull

Successful value propositions under highly scalable brands.

Nationwide pipeline with openings (10 planned in the current period) on increasingly favourable terms on pandemic fallout (150+ sites identified).

Robust finances, enabling ‘controlled’ expansion (now £3.5m net bank cash and £28m headroom).

Bear

Macro uncertainty, particularly regarding the impact of COVID-19.

Current market challenges, notably a tight labour market, food cost inflation (mitigated by growing volume discounts) and supply chain disruption (eased by company’s policy of sourcing locally).

Execution risk in active expansion but experienced management with good track record.

Analysts

Richard Finch

+44 (0)20 3077 5700

Russell Pointon

+44 (0)20 3077 5700

Fulham Shore’s positive trading update is a forceful endorsement of post-pandemic growth opportunities and confirmation of its own resources and ambition. In the eight weeks to 15 August sales showed impressive resilience (up 8%+ on 2019) despite exposure (almost 25% of sites) to subdued city centres (sales down 41%) as well as continued restrictions in the first half of the period. Increasing site availability and extensive savings in rents and capital costs on COVID-19 fallout look set to return openings to 2019 levels (10 due this year) and in the medium term drive a step change in estate size (a further 150+ locations across the UK plus international franchising). A cash-generative model with strong finances (£3.5m net cash with £28m headroom) should back this ambition.

Pushing at an open door

Facing an ‘unprecedented’ number of unlet premises likely in management’s view to take ‘many years’ to fill and consequently sympathetic landlords, Fulham Shore is actively implementing its expansion strategy. Following three openings in the financial year to date and with a further 12 sites under formal negotiation should meet FY22’s plan of 10 openings. On a similar run rate (arguably cautious, given momentum) by end 2025 an estate of over 110 restaurants is envisaged with a potential doubling thereafter on the back of suitable locations already identified (Franco Manca still much to the fore). Initial opportunities abroad by way of franchising are also under review. Another new source of growth is delivery and takeaway, which despite the return of eating out is widely expected to see significant retention of customers attracted during lockdowns. In line with trading since reopening Fulham Shore looks for these sales to remain above 2019 levels.

H221: Pivoting successfully

It is to management’s credit that its effective development of Franco Manca’s delivery and takeaway business curbed the year-on-year reduction in sales in the half to March to just 37% despite four months of dine-in closures and otherwise myriad restrictions. Indeed revenue was up 3% on the preceding half, which was boosted by ‘Eat Out to Help Out,’ while end March net debt held steady (£3.6m).

Valuation: Oven ready

With no consensus forecasts for FY23, valuation is based on pre-pandemic (FY20) performance and pre-IFRS 16 numbers. £8.3m EBITDA on £3.5m current net cash suggests EV/EBITDA of 13.0x, reflecting Fulham Shore’s evident growth potential.

Consensus estimates

Year
end

Revenue
(£m)

EBITDA*
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

EV/EBITDA (x)

03/20

68.6

15.2

1.8

0.2

0.0

12.4

03/21

40.3

9.0

(4.9)

(0.7)

0.0

20.7

03/22e

70.9

15.4

N/A

0.2

0.0

12.1

03/23e

N/A

N/A

N/A

N/A

0.0

N/A

Source: Refinitiv. Note: *Headline figures.

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Schumannstrasse 34b

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Research: TMT

Datatec — Strategic review to unlock embedded value

Datatec has announced a strategic review to ‘unlock and maximise shareholder value’ and ‘address the persistent gap between Datatec’s valuation and the inherent value of its underlying assets’. The solid operating performance across all divisions in FY21 gives us reassurance for Datatec’s interim results as the H122 reporting period ends, with strong industry growth globally. The positive anticipated H122 performance only exacerbates the gulf in valuation between Datatec and its peers. We have left our estimates unchanged but have revisited our valuation analysis and, with all three divisions expected to perform well, our conservative SOTP analysis highlights potential upside of c 175% from current share price levels. As the global economy recovers, the shares offer defensive growth and an attractive yield, with the potential for significant upside as management (with a track record of deal making) unlocks this embedded value. The group trades on 2.8x FY22e EV/EBITDA and 12.0x FY22e P/E.

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