Toridoll, the Japanese food conglomerate that bought Franco Manca’s owner this year, has expressed a possibility of exploring more UK acquisitions with small to medium-cap restaurants potentially the target.
Restaurants have been closing at the quickest rate in a decade, with independents being the worst affected, leaving empty sites and free market share for some of the larger players.
Two chains stand out as potential targets for Toridoll.
Tortilla
Tortilla Restaurant
One target for the Asian group could be Tortilla Mexican Grill PLC (AIM:MEX), the restaurant chain that saw sales outperform the industry average according to interim results released on Monday.
Sales in the period jumped 22% to £32.7mln, with the group opening three new sites in the past six months.
Analysts at Shore Capital Group (LSE:SGR) estimate the Mexican food company is trading on a 30x price-to-earnings ratio (P/E) for the 2023 financial year.
This is expected to drop to 16x P/E by 2024.
“This puts it at the top end of its wider UK leisure peers, and at a premium to its core UK restaurant peers, who trade on a P/E of between 15-20x,” says Shore Capital.
However, the capital markets company only rates the stock as a “hold” and instead believes there are better options.
Shore Capital added: “Although Tortilla, in our view, looks like a good fit based on its operational format, we believe Loungers remains the most undervalued equity in the small/mid-cap arena.”
Loungers
Last week, Loungers PLC (AIM:LGRS), despite reporting profits for the full year slipping, said inflationary pressures were improving.
Shares in the Cosy Club owner lifted over 2.7% in the last five days and analysts at Liberum believe it has impressively navigated the tough macro environment.
Liberum said: “Loungers has not put a foot wrong since listing in 2019, beating expectations prior to and during Covid.
“The management team is one of the strongest in the industry and the business is best placed to navigate the macro headwinds.”
The bank added Loungers has “one of the strongest balance sheets of all the leased operators,” giving it the ability to self-finance 34 new site openings per year.