Interesting write up. I think the sell case largely hinges on the following points: 1/ like-for-like volumes have declined cumulatively by 7% since 2019. 2/ Pricing has driven system sales and is up 26% cumulatively since 2019, so not much room to continue pulling the price lever. 3/ Although the MoU seems in "good shape", the estate is still top heavy with the big 3 controlling c.50% of the estate and most of store growth since 2008 has come from them. They will likely need to purchase stores from these franchisees and refranchise them to promising operators. This will come at a cost and likely more than the 8x EBITDA multiple paid for the Shorecal stores. 4/ The new buybacks announced are pretty small, only c.1.7% of their mkt cap.
I'd recommend reading the Redburn Atlantic initiation report if you can get your hands on it. The analyst is the only sell rating on the street and called the recent share price decline for the above reasons
Thank you for your comment. Honestly, I find the pricing/volume changes quite difficult to interpret, with constantly changing definitions of things like LFL. I'll take a crack at it and will comment here once I know more. Yes, the franchisee concentration is definitely a risk, partly mitigated by mutual dependence.
Interesting write up. I think the sell case largely hinges on the following points: 1/ like-for-like volumes have declined cumulatively by 7% since 2019. 2/ Pricing has driven system sales and is up 26% cumulatively since 2019, so not much room to continue pulling the price lever. 3/ Although the MoU seems in "good shape", the estate is still top heavy with the big 3 controlling c.50% of the estate and most of store growth since 2008 has come from them. They will likely need to purchase stores from these franchisees and refranchise them to promising operators. This will come at a cost and likely more than the 8x EBITDA multiple paid for the Shorecal stores. 4/ The new buybacks announced are pretty small, only c.1.7% of their mkt cap.
I'd recommend reading the Redburn Atlantic initiation report if you can get your hands on it. The analyst is the only sell rating on the street and called the recent share price decline for the above reasons
Thank you for your comment. Honestly, I find the pricing/volume changes quite difficult to interpret, with constantly changing definitions of things like LFL. I'll take a crack at it and will comment here once I know more. Yes, the franchisee concentration is definitely a risk, partly mitigated by mutual dependence.