Tortilla Mexican Grill – latest purchase shows a leap forward

The latest deal by Tortilla Mexican Grill (MEX.L) this fast-expanding burrito and tacos food restaurant group looks to be a cracker.

When it came to the market in October last year it declared its aim to open 45 new sites over the next five years to add to its existing chain the UK and in the UAE.

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This week it made a very quick leap toward its target.

Paying just £2.75m to an investment firm, it has added another eight sites in what, to me, looks like a cracking deal.

Buying a competitor

It has acquired the competing Mexican food Chilango chain, in what seems to be a deal that will really boost Tortilla’s coverage of premium sites, with six in London, one in Croydon and another in Manchester.

Chilango’s London sites are in Soho, London Bridge, Chancery Lane, Brushfield, London Wall and another in Islington, from where Tortilla built up its own operations.

Excellent synergy

The synergy of the acquisition is almost ‘textbook’ – it adds already operating sites, it creates another springboard from which the group can expand, while adding to its attractions to property owners with vacant sites anywhere around the country.

Plus, it also operates on a takeaway and delivery basis, making the operating of delivery kitchens and the group’s central production unit in Tottenham Hale even more economic. 

It significantly increases the group’s buying power.

Expansion continues

At the end of March, the group had 68 sites worldwide, some 52 sites in the UK operated by the group, three sites franchised to the SSP Group in the UK, four sites franchised to Compass Group UK & Ireland and nine franchised sites in the Middle East.

Richard Morris, CEO of Tortilla, stated that: 

“Chilango is a highly complementary brand that, similarly to Tortilla, provides a fantastic value-for-money proposition and embraces popular and growing sector trends for healthy, customisable food from an estate of restaurants situated in premium locations in London and Manchester.

This acquisition accelerates our ambitious plans to further expand the Tortilla brand and these sites are in addition to our initial target of opening 45 UK restaurants over the next five years, helping us to surpass this target. It also adds another brand to the Tortilla Group, enabling us to further strengthen our leading position in the UK’s fast-casual dining market.

We’re very excited about this acquisition and look forward to leveraging our combined knowledge and expertise within the Mexican fast casual dining sector.”

£1m extra for just £2.75m

The latest deal may not add massively in the current year’s figures for the group, but next year it provides an additional £1m a year to its EBITDA – all that for just £2.75m.

The group’s broker Liberum Capital is very bullish about the group and its prospects.

The sales for the current year to end December are estimated to rise from £48.1m in 2021 to £62.0m, while £74.5m is expected for 2023 and then £85.4m in 2024.

The broker is looking for £3.9m pre-tax profits this year, then £4.3m next year and £5.7m in 2024. 

That should take earnings up to 9.8p a share within the next two years or so, while at the same time building up its cash coffers from an estimated £1.4m by this year-end to £5.5m by end 2024.

That is even more impressive for a group that is looking to expand towards its target.

So, what about the group’s current share price?

The group came to the market last year at 181p a share, they hit 200p but have since then just drifted off with the market facing various Covid and Ukraine ups and downs.

Now at only 137.5p they look extremely attractive for investors taking the opportunity to jump aboard the shares of a rapidly growing group – from its float it could well have doubled in size inside two years.

The Liberum Capital analyst Anna Barnfather rates the shares as a Buy and has increased her target price to 235p.

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