MTY Food Group,

Q1 2019 - Results

MTY Food Group,

Q1 2019 - Results

1. PREVIOUS ANALYSES

MTY Food Group – A fundamental analysis

2. RESULTS

3. POSITIVES

3.1. System sales are up

System sales, which represent the combined revenues of all the franchised and company-owned stores, are up 27% from a year ago.

System Sales

3.2. Revenue is up

Due to the recent acquisitions, the revenue is up by 42% having reached $107,3M. If we extrapolate this figure to the coming quarters, revenue for the year could reach the all time high of $429M, while my previous estimate was $406M.

MTY Food Group Revenue

But I think we’ll see a larger figure than that at year end because of  the seasonality of the ice-cream and yogurt businesses. The first quarter is usually the worst quarter for these stores.

3.3. EBITDA is up

Not only did the revenue go up but the EBITDA also rose 47% to $28.4M, leading to a higher EBITDA margin.

MTY Food Group EBITDA

3.4. Net income is up (excluding non-recurring adjustments)

Although at first sight one might think that the net income has decreased compared to 2018, the truth is that last year there was a non-recurring tax adjustment that lead to an overstated net income figure.

If we don’t take that non-recurring adjustment into account (as we should), net income rose 67%!!! 

On my first analysis I was pointing to a $65M net income for the whole year of 2019 and I think that will easily be achieved.

3.5. Cash flow is up

The cash flow generated by operating activities has doubled to $26.8M and the FCF was $24,7M.

Let me remind you that MTY has a very low maintenance capex, which means that we could be seeing at least a FCF of 110, which at today’s market cap means a P/FCF of 12… for a company that is growing its revenue by 42%!!!

3.6. Dividends are up

Although I’m not a fan of dividends, a 10% increase shows me that the company is confident on its future cash generating ability.

3.6. Acquisitions

With the acquisition of Casa Grecque, the company takes one more step into the casual dining segment, a strategy leading to a larger diversification of MTY’s segments, given the company’s historical concentration in the Quick Service Restaurants segment.

4. NEGATIVES

4.1. Same store sales down

For almost the whole of its history, MTY has had negative same store sales growth of around 1%. The company says that the negative 1,4% SSS is due to abnormal cold weather in the west coast of the U.S.. Although I’m not worried about this, the truth is I that obviously I would prefer to see SSS growth rather than decline.

MTY Food Group sss

4.2. Net margin

Unfortunately the net margin went down to 13,7%. I expect it to go up in the next quarters.

5.1. OVERVIEW & CONCLUSION

5. OVERVIEW

After going through these results, my conviction in MTY’s future is clearly strengthened. Stanley Ma is no longer at the helm but the company keeps making acquisitions, growing its revenue, EBITDA, net income and free cash flow. 

The share price is falling 8% today and I’m not sure if this is related to the negative SSS or to a new big acquisition the company announced today. Either way, just by looking at these numbers, how can anyone be disappointed?

I’ll be looking at the acquisition of Papa Murphy’s Pizza in the next couple of days.

5.2. CONCLUSION

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