The dishes are hotting up all around the country as Tortilla Mexican Grill (LON:MEX) continues its expansion.

Sales in the first half-year to 3 July were up 30% to £26.9m (£20.8m) but a rise in protein and energy costs hit the bottom line, leaving the interim pre-tax profit substantially lower at just £0.3m (£2.6m).

However, against this backdrop the UK’s largest and most successful fast-casual Mexican restaurant group has carried on with its expansion plans to cover the country.

Following the now bedded-in Chilango acquisition, the group opened five new sites in this period and has plans to open another five in the second half.

Further to that its strategic plans are to open between 12 to 15 new sites in the next year. The group is looking to carry on taking advantage of the depressed commercial property market, where landlords are almost desperate to tenant-up their vacant sites.

The company has opened more of its sites in partnership with the Compass Group, while its tie-up with SSP saw the opening of a site in Bristol Airport, while the Gatwick Airport site achieved record sales over the summer.

Analyst Opinion

At the group’s brokers Liberum Capital, their analyst Anna Barnfather has retained her Buy recommendation on the group’s shares, which were knocked for six upon the interim news.

The shares fell heavily yesterday, while Barnfather has lowered her Target Price from 235p to 170p, as she noted that Tortilla’s outperformance had continued, while having net cash in its balance sheet and remaining the leader in an attractive space which “will bear fruit when the cost environment normalises.”

Her estimates for the current year to end December are for sales to rise to £58.4m (£48.1m) while pre-tax profits ease considerably to £0.7m (£5.7m), dropping earnings to 0.8p (12.3p) per share.

Her forecast is for a gradual recovery next year to £69.8m sales, £1.1m profits and 1.2p in earnings.

By 2024 Barnfather expects much better times to ensue with sales of £85.2m for the enlarged estate, £2.7m profits and 4.3p in earnings per share.

Conclusion

Obviously cost pressures have hit the restaurant and fast-food sector everywhere, so perhaps we should not have been too surprised at these interim figures. 

However, the slowing down in financial expectations as the group expands could be too cautious to entice fresh investors into the shares, which might well make them appear overpriced for a while.

The FTSE 100 fell on Monday as the inverse relationship between London’s leading index and the pound sprang back into life.

A U-turn by the UK government on tax rates saw the pound gain and hit shares in the FTSE 100’s overseas earners.

“The FTSE 100 fell 1% to 6,827, dragged down by miners, financial services and consumer goods specialists. Many of these earn in dollars and so a stronger pound – if even if it just a temporary move – is bad for them,” said Russ Mould, investment director at AJ Bell.

The FTSE 100 has tracked UK assets to the downside since the doomed mini budget, but loses were contained by a weaker pound.

The FTSE 250, however, has suffered dramatically worse as the domestic facing index feels the pressure of uncertainty around the UK economy.

Despite an improvement in the pound in recent days, Liz Truss’s government is still subject to a high level of scrutiny and upcoming events may lead to further volatility.

“The u turn had been inevitable given the market reaction but there’s every likelihood this will buy the UK government time politically but not necessarily from investors,” said Joshua Raymond, Director at financial brokerage XTB.

“The 45p tax cut has taken around £2billion off extra borrowing. That’s it. The UK government is facing extra borrowing of closer to £150bn and at higher interest rates than in the past decade. That’s the problem. Until investors get clarity in the scale of borrowing needed and costs, which means a detailed OBR forecast, the pound Sterling volatility will likely continue.”