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Category: MTY Food Group (MTY)
Date: 12 April 2021 Stock price of MTY Foods (MTY): $55.60 Market Capital Of MTY Foods: $1.37 billion We take a look at the 1st quarter 2021 earnings report of MTY Food Group (MTY) a group that franchises and operates quick-service, fast casual and casual dining restaurants under more than 80 different banners in Canada, the US and Internationally. With 6,949 locations, the many flavours of the MTY Group hold the key to responding to the different tastes and needs of today’s consumers as well as those of tomorrow
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In fiscal 2020, we navigated unprecedented disruption in our industry; however, as a result of the team’s resilience, determination and passion, we ended the year stronger than we started -Meghan Roach, President and Chief Executive Officer, Roots "
More About MTY Food Group
MTY Group franchises and operates quick-service, fast casual and casual dining restaurants under more than 80 different banners in Canada, the US and Internationally. Based in Montreal, MTY is a family whose heart beats to the rhythm of its brands, the very soul of its multi-branded strategy. For over 40 years, it has been increasing its presence by delivering new concepts of restaurants, making acquisitions, and forging strategic alliances, which have allowed it to reach new heights year after year. By combining new trends with operational know-how, the brands forming the MTY Group now touch the lives of millions of people every year. With 6,949 locations, the many flavours of the MTY Group hold the key to responding to the different tastes and needs of today’s consumers as well as those of tomorrow
Overview of MTY Food Group 1st quarter 2021 earnings
First Quarter Fiscal 2021 Highlights
- Free cash flows(1) per diluted share decreased by 1% compared to Q1-20 to reach $1.23.
- Cash flows from operating activities of $31.3 million, up by 1% compared to Q1-20, despite duration of COVID-19 pandemic.
- Adjusted EBITDA(1) of $32.6 million in the quarter, down 20% compared to Q1-20.
- US & International segment adjusted organic EBITDA growth of $4.7 million.
- Net income attributable to shareholders of $13.4 million in the quarter, or $0.54 per share, down from $19.0 million, or $0.76 per share, in Q1-20.
- Long-term debt repayments of $29.1 million for the quarter.
- System sales(1) of $761.1 million, down 24% compared to Q1-20. System sales down 48% in Canada, 4% in US and 32% Internationally. Excluding impact of foreign exchange, US system sales generated positive organic growth for a second quarter in a row.
- First quarter digital sales(1) represent 31% and 29% of total system sales for Canada and the US, respectively in the quarter compared to 5% and 14% in Q1-20.
- 338 restaurants were temporarily closed at the beginning of the quarter with 321 still temporarily closed at quarter end. 302 remain temporarily closed as at the date of this press release, which represents less than 5% of the network.
- 1,705 locations were closed one or more days during the quarter, representing 57,100 lost business days.
- Management initiatives resulting in a reduction of recurring controllable expenses of $6.3 million when compared to Q1-20.
MTY Food Group management commentary on their 1st quarter 2021 earnings
MTY Food Group Inc. (“MTY”, “MTY Group” or the “Company”) (TSX: MTY), one of the largest franchisors and operators of multiple restaurant concepts worldwide, reported its results for the first quarter ended February 28, 2021.
“The first quarter of our 2021 fiscal year was marked by unprecedented restrictions imposed on our business in Quebec and Ontario that lasted for most of the period while our US business benefitted from the gradual lifting of restrictions in the United States. Considering those circumstances, we are pleased with our first quarter results. Our capacity to rapidly adapt is well reflected in the proportion of our network’s system sales coming from digital channels, which is sequentially up compared to the quarter ended November 30, 2020. Cash flows from operations remained solid at $31 million, stable versus last year. With $29 million in long-term debt repayments during the quarter, our total repayments since the beginning of the pandemic have now reached close to $130 million, bringing MTY’s leverage to a level that is lower than most of its peers in North America,” stated Eric Lefebvre, Chief Executive Officer of MTY
“The first quarter of our 2021 fiscal year was marked by unprecedented restrictions imposed on our business in Quebec and Ontario that lasted for most of the period while our US business benefitted from the gradual lifting of restrictions in the United States. Considering those circumstances, we are pleased with our first quarter results. Our capacity to rapidly adapt is well reflected in the proportion of our network’s system sales coming from digital channels, which is sequentially up compared to the quarter ended November 30, 2020. Cash flows from operations remained solid at $31 million, stable versus last year. With $29 million in long-term debt repayments during the quarter, our total repayments since the beginning of the pandemic have now reached close to $130 million, bringing MTY’s leverage to a level that is lower than most of its peers in North America,” stated Eric Lefebvre, Chief Executive Officer of MTY
“With evolving COVID-19 government restrictions, our system sales remained under pressure and adjusted EBITDA decreased by 20% to $32.6 million. For the quarter, MTY’s network was impacted by over 57,000 of lost business days, which was almost twice the number reported for the fourth quarter. This quarter again, Cold Stone Creamery and Papa Murphy’s were the main drivers of organic growth in system sales reaching a combined $61 million and fueling an organic growth in adjusted EBITDA for the US & International segment of 23%. The 55% decline in Canadian adjusted EBITDA more than offset that growth. Continuous cost control is in place and resulted in savings of $6.3 million in recurring controllable expenses.
“Over the last twelve months, we focused our capital allocation on paying down our debt and preparing MTY for the moment the pandemic would dissipate. Because of the sacrifices made since the beginning of the pandemic, the Company finds itself in a solid financial position with $39 million of cash on hand, over $290 million available on its credit facility and a steady stream of free cash flows. While it is likely the next few months will remain challenging given the constantly changing intensity of government restrictions throughout the territories in which our franchisees operate, we anticipate MTY will be in a position to resume the payment of dividends, the repurchase of shares for cancellation and if attractive targets become available, its acquisition strategy, in the second half of 2021,” concluded Mr. Lefebvre.
NEAR-TERM OUTLOOK
The Company is closely monitoring the global situation surrounding COVID-19 and taking proactive steps to adapt to the changes for the well-being and safety of its employees, franchisees and customers, and the continuity of its operations and businesses. Given the dynamic nature of the situation, it is not possible to ascertain what impact there may be on the Company’s long-term financial performance. MTY is taking the necessary steps to mitigate the potential consequences that this situation may have on its operations, franchisees, partners and service to MTY’s customers. Please refer to section “Highlights of Significant Events” in the Company’s February 28, 2021 Management’s Discussion and Analysis (“MD&A”) for further details on actions taken in response to COVID-19. In the very short term, management’s primary focus is to reopen the restaurants that have been temporarily closed as a result of the pandemic and to rebuild customer confidence by implementing proper safety measures and adjusting the way customers are served. Even after the pandemic is over, customer consumption patterns may shift temporarily or permanently from those traditionally witnessed and MTY will have to adapt to new customer behaviours.
Management believes the Company will be able to regain customer confidence in the brands and restore the positive momentum it saw in the first quarter of 2020. The Company’s focus, after the pandemic, will still be on innovation, quality of food and customer service in each of the outlets and maximizing the value offered to customers. The restaurant industry will remain more than ever challenging in the future as customer consumption patterns change and management believes that the focus on the food offering, innovation, consistency and store design will give MTY’s restaurants a stronger position to face challenges. Given this difficult competitive context in which more restaurants compete for a finite amount of consumer dollars, each concept needs to preserve and improve the relevance of its offerings to consumers.
“Over the last twelve months, we focused our capital allocation on paying down our debt and preparing MTY for the moment the pandemic would dissipate. Because of the sacrifices made since the beginning of the pandemic, the Company finds itself in a solid financial position with $39 million of cash on hand, over $290 million available on its credit facility and a steady stream of free cash flows. While it is likely the next few months will remain challenging given the constantly changing intensity of government restrictions throughout the territories in which our franchisees operate, we anticipate MTY will be in a position to resume the payment of dividends, the repurchase of shares for cancellation and if attractive targets become available, its acquisition strategy, in the second half of 2021,” concluded Mr. Lefebvre.
NEAR-TERM OUTLOOK
The Company is closely monitoring the global situation surrounding COVID-19 and taking proactive steps to adapt to the changes for the well-being and safety of its employees, franchisees and customers, and the continuity of its operations and businesses. Given the dynamic nature of the situation, it is not possible to ascertain what impact there may be on the Company’s long-term financial performance. MTY is taking the necessary steps to mitigate the potential consequences that this situation may have on its operations, franchisees, partners and service to MTY’s customers. Please refer to section “Highlights of Significant Events” in the Company’s February 28, 2021 Management’s Discussion and Analysis (“MD&A”) for further details on actions taken in response to COVID-19. In the very short term, management’s primary focus is to reopen the restaurants that have been temporarily closed as a result of the pandemic and to rebuild customer confidence by implementing proper safety measures and adjusting the way customers are served. Even after the pandemic is over, customer consumption patterns may shift temporarily or permanently from those traditionally witnessed and MTY will have to adapt to new customer behaviours.
Management believes the Company will be able to regain customer confidence in the brands and restore the positive momentum it saw in the first quarter of 2020. The Company’s focus, after the pandemic, will still be on innovation, quality of food and customer service in each of the outlets and maximizing the value offered to customers. The restaurant industry will remain more than ever challenging in the future as customer consumption patterns change and management believes that the focus on the food offering, innovation, consistency and store design will give MTY’s restaurants a stronger position to face challenges. Given this difficult competitive context in which more restaurants compete for a finite amount of consumer dollars, each concept needs to preserve and improve the relevance of its offerings to consumers.
MTY Food Group (MTY) stock price history over the last 5 years
The image below obtained from Google, the shows the stock price history of MTY Food Group over the last 5 years.. And its been a good time for MTY Foods stockholders with the stock increasing by 62.2% over the last 5 years.
The stock of MTY Foods is trading at close to its 52 week high and far away from its 52 week low which is a clear indication that the short term sentiment and momentum of MTY Food Group stock is positive at this point in time.
The stock of MTY Foods is trading at close to its 52 week high and far away from its 52 week low which is a clear indication that the short term sentiment and momentum of MTY Food Group stock is positive at this point in time.
Latest stock valuation of MTY Food Group (MTY)
So what is MTY Food Group (MTY) stock worth based on their 1st quarter 2021 earnings release? Based on their latest earnings report our valuation model provides a target price (full value price) for MTY Food Group at CAD4.20 a stock.
We therefore believe the stock of MTY Food Group (MTY) is undervalued at its current price of CAD3.58
We usually recommend long term fundamental or value investors look to enter a stock at least 10% below our target price (full value price), which in this case is CAD4.20, thus a good entry point into MTY Food Group would be at $3.80 or below.
We expect the stock of MTY Food Group to kick up from current levels in coming weeks and months to levels closer to our target price (full value price), as their stock is price is undervalued
We therefore believe the stock of MTY Food Group (MTY) is undervalued at its current price of CAD3.58
We usually recommend long term fundamental or value investors look to enter a stock at least 10% below our target price (full value price), which in this case is CAD4.20, thus a good entry point into MTY Food Group would be at $3.80 or below.
We expect the stock of MTY Food Group to kick up from current levels in coming weeks and months to levels closer to our target price (full value price), as their stock is price is undervalued
Next earnings release from MTY Food Group
It is expected that MTY Food Group (MTY) will release their 1st quarter 2021 earnings release in mid July 2021
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