The Fulham Shore – set to make more dough?

If, as a country, we can manage to get some control on the spreading of Omicron, the UK restaurant, cafes and eateries sector may not be too impacted.

After the Covid-19 hassles and the accompanying lockdowns, that sector has been suffering and it would be totally understandable if investors were wary of buying into such a potentially precarious marketplace.

However, today I take the view that the shares of The Fulham Shore (LON:FUL) have distinct attractions and near-term upside potential.

The business

Led by a very successful, experienced and entrepreneurial team, this group today operates two main restaurant brands – The Real Greek and Franco Manca.

The Real Greek is a growing chain of restaurants, currently 21, serving delicious and healthy dishes from Greece and the Eastern Mediterranean, where people have a passion for good food, family and life.

Franco Manca restaurants, currently 53, offer a choice of six Neapolitan sourdough pizzas on the menu, supplemented by two daily special pizzas and, at times, some light side orders. All pizzas are cooked in wood-burning brick ovens.

The restaurants operate a high turnover of diners due to the limited menu, competitively low pricing and fast service.

A Board with skin in the game

There are 634,061,267 shares in issue.

Larger holders include Nabil Mankarious, CEO (The Real Greek)(18.4%), Sami Wasif (Franco Manca)(13.4%), and David Page, Chm (Pizza Express and Clapham House) (13.2%), Canaccord Genuity Group (4.9%), Unicorn Asset Management (4.9%), P Solari (3.6%) and Guiseppe Mascoli (Franco Manca) (3.4%).

Recent results

During the third lockdown and Tier 4 the group traded through delivery and take out services at some 48 Franco Manca’s and at 10 The Real Greek’s, operating on a reduced staffing basis, with the majority of the group’s workforce on the Coronavirus Job Relation furlough scheme.

So, the lifting of the lockdowns made a significant impact upon the group’s trading.

In fact so much so that it has been trading better than it was in the corresponding pre-pandemic period.
At the beginning of last week, the group declared its interims to 26 September. The revenue was up 103% at £39.5m with EBITDA having swung from a £0.1m loss to a £6.9m positive.

In the period the operating cashflow was up to £15.6m from the previous £6.3m.

Net cash came out at £5.1m against a corresponding debt of £3.6m.

Chairman sounding confident

Chairman David Page, previously of Pizza Express and Clapham House, sounded very bullish:

“With strong revenue growth in the Half Year and continued buoyant current trading, Fulham Shore is performing ahead of management’s expectations with many restaurants throughout the UK continuing to break weekly trading records.

This augurs well for the Group’s full year performance, which we expect to be now ahead of market expectations, and our UK wide expansion plans.

We have 21 more potential sites in solicitors’ hands across both businesses and look forward with confidence to the continued growth of both of our fantastic restaurant businesses over the coming years.”  

Broker’s View

Analyst Sahil Shan at the company’s brokers Singer Capital Markets rates the shares as a ‘buy’ looking for the current year to end March 2022 to hit £73.4m of revenues (£40.3m). That would generate £1.4m of adjusted pre-tax profits (£5.2m loss) with earnings of 0.2p per share (0.6p loss).

Inspired by the latest showing he is going for 2023 and 2024 revenues of £94.7m and £110.7m respectively, worth £3.6m then £6.7m in profits.

Accordingly, his price objective is 24p per share.

My View

I am not scared about Omicron and really hope that the UK eating out sector does not suffer.

I am impressed at the experience of the team behind the growth of this group and the big share stakes that they have in its equity.

They not only have the right attitude in catering to their audience, offering tight ranges and lower prices, but their venues are distinctive and as the estate grows so too will be their local impact.

The group’s shares have been as high as 20.4p this year and as low as 9p.

Now at just 16p I am hopeful that the new variant does not hit the company and others in its sector, so I am putting them out on an easy Target Price of 20p.