Profits on a plate from Tasty Tasty Group is another successful AIM restaurant roll-out story. The company has been quoted on AIM since 2006. Its first ever half-year results revealed sales of £1.1m from four restaurants with another two in the pipeline. Fast-forward to 2013 and final results showed turnover of £23m for the full year, from a portfolio of 28 restaurants.
an excellent example of a fastpaced roll-out As of March this year, Tasty was operating from 31 sites. The majority of these are Wildwood/Wildwood Kitchen, an Italian/grill chain. Six are DimT dim sum oriental restaurants. One other site is operating under a different brand. Tasty’s five year record is an excellent example of a fast-paced roll-out. Since 2008, sales have increased at an average rate of 20% per annum. Operating profit in that time has swung from -£1.6m to £2.3m.
Tasty’s cost base scales favourably The most recent finals give some hint as to how much further the rollout (and thus profits) could go. Five sites were opened in 2013. In the first quarter of this year a Wildwood Kitchen (a kind of mini-Wildwood) was opened in Oakham. Wildwood itself arrived in Salisbury in March.
In October 2013, Tasty raised £3.5m through a share placing. This left the company with £3.4m of cash on the balance sheet at the end of the year. Management plans to use this (and a favourably-priced debt facility from Barclays) to accelerate the roll-out. This fundraising looks to have been a wise move. Last year’s income statement shows how quickly profits have risen as the Wildwood chain has expanded. Tasty reported a 30% increase in operating profit from a 20% rise in sales. This suggests that Tasty’s cost base scales favourably with the roll-out. Tasty incurred £260k of pre-opening costs in 2013 as it added five sites. My quick calculations suggest that Tasty is planning to double in three years. It seems that brokers are expecting an even faster expansion and are forecasting a 65% increase in EPS this year with sales rising a similar amount. Given that the company reported EPS of only 2.67p last year, I would normally have said that shares in Tasty were overpriced. However, the company has previously doubled sales in just two years. If management can repeat that trick then today’s valuation would not be outrageous. I do have some concerns, however. First, Tasty is not the only casual dining chain with plans to roll-out on the UK’s high streets using cash
from public markets. Tasty competes here with Prezzo, Richoux Group and Restaurant Group. Add in the privately owned and overseas chains such as Pizza Express and Nando’s and it is plain how competitive the sector is.
Tasty is not the only casual dining chain with plans to roll-out
The news that Tragus Group, owners of the Strada brand, are looking to offload a large number of sites may present some opportunities for Tasty. However, forthcoming interest rate rises will soon begin to affect the disposable incomes of borrowers. The next two years could be tougher for Tasty than the last two. On the current valuation, the company simply has to deliver. Tasty (LON:TAST) FOR Strong track record Plenty of room for further Wildwood roll-out AGAINST Interest rate threat to disposable incomes Valuation demands growth Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high
£51m 97p:99p 21.8 0 82p:125p
Published on Jun 30, 2014