Tortilla Mexican Grill’s (Tortilla’s) continued ‘massive’ outperformance of the UK restaurant market despite, and because of, COVID-19 is further endorsement of the company’s difference to most UK hospitality businesses. Tortilla’s ‘transformational’ 2021 saw 24% like-for-like sales growth versus 2019 (adj. pre-IFRS 16 EBITDA more than trebled) followed by similar momentum in Q122 and heightened optimism about growth opportunities accelerated by the pandemic, which echoes that of big brother Chipotle (NYSE: CMG) in the US. With its popular value offering in tune with the times and scalability shown by burgeoning partnerships with SSP Group, Compass Group and Merlin, Tortilla is on track for 45+ company-run openings by end 2026 (c nine this year) backed by a cash-generative model, low site capex and c £14m liquidity at December 2021.
Tortilla Mexican Grill |
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28 April 2022 |
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Tortilla Mexican Grill’s (Tortilla’s) continued ‘massive’ outperformance of the UK restaurant market despite, and because of, COVID-19 is further endorsement of the company’s difference to most UK hospitality businesses. Tortilla’s ‘transformational’ 2021 saw 24% like-for-like sales growth versus 2019 (adj. pre-IFRS 16 EBITDA more than trebled) followed by similar momentum in Q122 and heightened optimism about growth opportunities accelerated by the pandemic, which echoes that of big brother Chipotle (NYSE: CMG) in the US. With its popular value offering in tune with the times and scalability shown by burgeoning partnerships with SSP Group, Compass Group and Merlin, Tortilla is on track for 45+ company-run openings by end 2026 (c nine this year) backed by a cash-generative model, low site capex and c £14m liquidity at December 2021.
Simply does it
Tortilla’s success lies in the simplicity of its operation and menu. Aside from items benefiting from being freshly produced on site, like the salsas and guacamole, most items are sourced from a single central kitchen unit, which de-risks and curbs costs by removing the need for skilled staff and extraction on site and allows for flexibility (60–200sqm) in formats and locations beyond the high street. Partnerships at transport hubs (the latest is at Bristol Airport) with SSP, and at higher education campuses (with a minimum target of 14 over five years) with Compass, are capital-light, extending potentially to other venue types (eg sports, hospitals and defence and government). Delivery, c 35% of sales and a growth channel post COVID-19, is well suited to the limited Tortilla menu and can cover commission costs, while energy usage is half the industry average owing to formats without extraction.
Hitting the spot
While flattered by VAT rate reduction, Q122 like-for-like sales growth of 20% versus 2019 is well ahead of the restaurant market’s c 7% (Coffer CGA), reflecting Tortilla’s self-proclaimed sector ‘sweet spot’ (ie a healthy, customisable product at a competitive price). An even sharper outperformance in 2021 after lockdowns were eased in April (+30% vs +1% market) is testament to Tortilla’s flexibility, allowing it to re-open earlier than peers plus a successful swing towards delivery.
Valuation: Appetising
On Tortilla’s favoured metric, pre-IFRS 16 EBITDA, 2022 consensus forecasts of £7m (2021 underlying estimated £6–6.5m) suggest 9x EV/EBITDA, which is low.
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Consensus estimates
Source: Refinitiv. Note: *£6–6.5m estimated by company, excluding government COVID-19 support. **Excluding exceptional items and pre-opening costs. ***Assuming 20% tax. |
EDISON QUICKVIEWS ARE NORMALLY ONE-OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.
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Research: Investment Companies
JPMorgan Global Growth & Income’s (JGGI) managers, Helge Skibeli, Rajesh Tanna and Tim Woodhouse, look for long-term structural winners, but they are also ’leaning into the recovery’, taking advantage of the investment opportunities they see among good companies yet to realise the full benefit of the global economic reopening. The managers’ stock selection skills have ensured that the trust has outperformed its benchmark, and its peers, over the short and long term, with an average annualised return of 14.9% (NAV) and 13.7% (share price) over the 10 years to end March 2022, compared to a benchmark return of 12.7%. This strong performance has allowed JGGI to deliver competitive and rising dividends. Its current yield is 3.8%. JGGI is due to merge with Scottish Investment Trust (SCIN) by the end of Q222, a move which will almost double its assets under management to £1.3bn and reduce ongoing charges (please refer to our last note).