Jordan ZinbergMTY Food GroupMTY.TOWATCHOct 25, 2024

Great dividend, just raised 35% on Friday. Paying down debt. Balance sheet in good shape. Closing underperforming stores, which can limit near-term growth. FCF is good. Nothing came out of strategic review.

Restaurants in Canada and US. Same-store sales were down 1.9% latest quarter. Consumer is cautious. Stock's cheap enough (6x PE for 2028) that you can wade in. Still sees 8% growth. Good value play, though you might have to wait a year or so to see it. There's more strength in the economy than the fear that's in the stock right now.

(Note the short timeframe.)  Not a good performer. Still a ton of value. Nice cashflow. A bit too much debt, but paying it down. Closing unprofitable stores. Founder could be getting ready to sell.

Likes the franchise model, as they get revenue from that and grow their great brands. Market was worried it couldn't grow by acquisition to the same degree, plus hurt by delay in back-to-office. Implemented strategic review in December. 

Last week, announced huge dividend increase. Inexpensive PE. Great value, large margin of safety. Yield is 3.48%.

Shares of MTY are cheap but revenue is expected to be flat for the foreseeable future here and organic growth is muted as well. We would be fine with moving on to something else.
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Shares of MTY are cheap but revenue is expected to be flat for the foreseeable future here and organic growth is muted as well. We would be fine with moving on to something else.
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Shares of MTY are cheap but revenue is expected to be flat for the foreseeable future here and organic growth is muted as well. We would be fine with moving on to something else.
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Shares of MTY are cheap but revenue is expected to be flat for the foreseeable future here and organic growth is muted as well. We would be fine with moving on to something else.
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In Q2-2024, MTY reported a slight decrease in revenue by around 1% to $303.7M, beating the estimate of $294.5M, and EPS came at $1.27, which also beats the estimate of $1.07. The results are just OK, but improving, and came in better than expected in both the top and bottom line. MTY continues to run a leveraged balance sheet with a net debt of $1.2B and net debt/EBITDA of 4.7x. The company also repurchased shares at a more aggressive pace recently and just renewed its share repurchase authorization. MTY’s businesses continue to generate healthy cash flow, however, MTY’s growth prospect sover the next few years is expected to be flat, but the valuation is also reasonable, trading at 12.7x Forward P/E.
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Company has been around for a long time. Concern is that M&A not performing well. Location of business units in shopping malls, and food courts a concern (unsure on traffic in these locations). Ability to grow business is in question. However, value of business on markets is cheap. Would recommend investors look elsewhere. 

Impacted by wage inflation, rising food costs, and consumers spending less on eating out. Valuation is now attractive enough for a speculative (small position) buy.

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Debt levels can be a concern. Operating cash flow stable. Management focused on cost cutting. Unlock Premium - Try 5i Free

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Proven food consolidator in North America. Regained pre-pandemic sales levels. Trading at a good valuation. Geographic diversification. Unlock Premium - Try 5i Free

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Proven food consolidator in North America. Regained pre-pandemic sales levels. Trading at a good valuation. Geographic diversification. MTY can be defined as a network of restaurant and food brand names and has proven itself to be a successful consolidator in the industry. Unlock Premium - Try 5i Free

Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. They generate free cash flow and the valuation is fairly cheap now at 2.5x forward sales and 15x forward P/E. Liquidity is not great. If rates rise, the debt could become a problem and put pressure on their margins and balance sheet. Valuation is at historical lows and there is decent upside potential with good downside protection. Unlock Premium - Try 5i Free