Tortilla Mexican Grill — That’s a wrap!

Tortilla Mexican Grill — That’s a wrap!

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.

Richard Finch

Written by

Richard Finch

Analyst, Consumer

Tortilla Mexican Grill

That’s a wrap!

Travel and leisure

QuickView

28 April 2022

Price

160p

Market cap

£62m

Share price graph

Share details

Code

MEX

Listing

AIM

Shares in issue

38.7m

Business description

Founded in 2007, Tortilla Mexican Grill is the UK’s largest fast-casual Mexican restaurant group with 61 sites, including eight franchised by SSP Group and Compass Group. It also has nine international franchised sites (mostly in Dubai). Tortilla listed in October 2021, raising £5m for the company and £23m for selling shareholders at 181p per share.

Bull

Popular value-for-money proposition in buoyant sectors of the fast-casual restaurant market.

Highly scalable brand with flexibility in locations and formats across the UK and a central kitchen infrastructure, ensuring product supply and quality.

The fallout from COVID-19 offers a strong growth opportunity (eg greater site availability on favourable terms for a well-funded operator (c £7m net cash at December 2021)).

Bear

Economic uncertainty mitigated by customisable value offering with particular appeal to the core 16–34 demographic.

Current staffing, supply chain and cost challenges eased by operational flexibility and simplicity.

Execution risk of site roll-out (at least 45 openings are planned over the next five years) but experienced management with good record.

Analysts

Richard Finch

+44 (0)20 3077 57 00

Russell Pointon

+44 (0)20 3077 57 00

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.

Consensus estimates

Year
end

Revenue
(£m)

EBITDA

pre-IFRS 16 (£m)
(£m)

PBT**
(£m)

EPS
(p)

DPS
(p)

EV/pre-IFRS 16 EBITDA (x)
(x)

12/19

35.4

2.5

(0.4)

N/A

N/A

N/A

12/20

26.8

2.4

(1.3)

N/A

N/A

N/A

12/21

48.1

8.7*

4.5

9.3***

0.0

6.3

12/22e

57.3

7.0

N/A

N/A

0.0

8.9

12/23e

67.3

7.2

N/A

N/A

0.0

8.6

Source: Refinitiv. Note: *£6–6.5m estimated by company, excluding government COVID-19 support. **Excluding exceptional items and pre-opening costs. ***Assuming 20% tax.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

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London +44 (0)20 3077 5700

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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