the next shake shack?

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HOTR Newsletter 79 March 1, 2015 www.thefocusedstocktrader.com Chanticleer (HOTR) The Next Shake Shack? An Undervalued Restaurateur with Strong Brand Portfolio and Significant Growth Opportunities HOTR’s share price is under $5.00 and is considered low priced and speculative. Readers should conduct their own due diligence and speak with a registered investment adviser. Key Statistics Ticker: HOTR Current Price: $2.1999 Price Target: $6.00 52 Week High: $5.24 52 Week Low: Market Cap: $15.93 million PE Ratio: NA Price to Book (mrq): 0.98 Price/Sales (ttm): 0.59 EV/EBITDA (ttm): Key statistics do not include rights offering or BGR transaction as neither has closed. ttm= trailing twelve months mrq= most recent quarter Page 1 of 14

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An Undervalued Restaurateur with strong brand portfolio and significant growth opportunities.

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HOTR Newsletter 79 March 1, 2015

www.thefocusedstocktrader.com Chanticleer (HOTR)

The Next Shake Shack? An Undervalued Restaurateur with Strong Brand Portfolio and Significant Growth Opportunities

HOTRs share price is under $5.00 and is considered low priced and speculative. Readers should conduct their own due diligence and speak with a registered investment adviser.

Key Statistics

Ticker: HOTRCurrent Price: $2.1999Price Target: $6.00

52 Week High: $5.2452 Week Low: $1.40

Shares Out: 7.24 million Public Float: 5.82 million

Market Cap: $15.93 millionPE Ratio: NAPrice to Book (mrq): 0.98

Price/Sales (ttm): 0.59EV/EBITDA (ttm): NA

Debt/Equity (mrq): 47.58%ROE (ttm): 51.73%

Key statistics do not include rights offering or BGR transaction as neither has closed. ttm= trailing twelve months mrq= most recent quarter

Executive Summary

Chanticleer will close on a transformative transaction that will give the company the necessary scale to start a rapid growth trajectory. It has the market potential to quadruple its location count in the next five to ten years. Despite, this the company is trading at a significant discount to its peer group.

Company Description

Chanticleer Holdings was formed in 2005 as a business development company. In 2008, the company was transformed into an operating holding company. The company is now an owner and operator of multiple restaurant brands domestically and internationally.

Latest IR Presentation

Share Structure

Shares Outstanding: 7.24 million pre-February/March 2015 rights offering

Market Cap: $15.06 million

Public Float: 5.82 million

Insider Ownership: 32.63%

Brand Portfolio The companys brands include: Hooters 11 international locations and 2 domestic locations American Burger Co 6 domestic locations Just Fresh7 domestic locations

Hooters

Chanticleer currently owns the exclusive franchise rights to develop and operate Hooters restaurants in South Africa, Australia,Europe,and Oregon and Washington in the U.S.

Hooters restaurants are casual beach-themed establishments featuring music, sports on large flat screens, and a menu that includes seafood, sandwiches, burgers, salads, and Hooters original chicken wings. The company originated the breastaurant category with its skimpily dressed all female wait staff called Hooters Girls. Given Hooters created a new restaurant category, it is an iconic brand name.

Chanticleer currently owns and operates in whole or part of13 Hooters restaurants in all of itsterritories including five in South Africa, four in Australia, one in Hungary, one in England, and two in the U.S giving the company an established infrastructure in South Africa, Australia, and Europe to grow it network.

Chanticleer grew its Hooters network organically and through acquisition. The company opened nine locations and acquired five locations. The companys international acquisition strategy started with Hooters in Nottingham England in November 2013. The company then purchased a Hooters in Portland, Oregon and a Hooters in Tacoma, Washington in a combined transaction in January 2014. In June 2014, the company acquired a 60% stake in Hooters restaurants in Parramatta and Penrith, Australia.

American Burger Co.

In September 2013, Chanticleer acquired American Roadside Company, now American Burger Company. The company offers a Made in America menu that includes premium beef burgers, sandwiches, salads, side items, milk shakes, and beer and wine. Chanticleer recently acquired The Burger Company restaurant in Charlotte, NC, which has a similar concept becoming ABCs sixth location. American Burger Co. has six locations including one in Smithtown, New York, three in Charlotte, North Carolina, and two in South Carolina. This fast casual concept provides the company with an established brand and tremendous room for growth. The average American Burger does $800,000 in revenues per year.

Just Fresh

In September 2013, Chanticleer made its initial investment of 51%, which has since grown to 56% ownership, in JF Restaurants, LLC and JF Franchising Systems, LLS. The company operates a chain of seven restaurants throughout North Carolina, under the Just Fresh name, with the first location opened in 1994. The menu consists of fresh, health-conscious items such as salads, wraps, sandwiches, soups, freshly baked items, and smoothies. Just Fresh provides customers with a fresher, more nutritional diet. Just Fresh attracts customers due to its foods positive effect on physical health and overall wellness. The average Just Fresh does $800,000 in revenues per year.

This concept is completely different from Hooters and American Burger Company providing diversification as well as tremendous growth opportunities.

Chanticleer also owns a 3% interest in Hooters of America. At the end of July 2013,Hooters of America owns 160 restaurants and operates or franchises over 430.

BGR: The Burger Joint

On February 18, 2015, Chanticleer announced an agreement to acquire BGR: The Burger Joint, with expectations for the acquisition to on or around March 15, 2015. BGR: The Burger Jointis a better burger concept with a menu focusing primarily on its proprietary blend of Prime, dry-aged burgers grilled over an open flame. BGRs buns are baked fresh by local bakers and they use fresh vegetables prepared in store. BGR was voted #7 Burger Chain in USA by The Daily Meal & MSN.com, #1 Burger Restaurant by the Washingtonian and #1 Burger Patty by the Washington Post. BGR currently has nine corporate owned locations, eleven franchises including one international location in Kuwait, and over eighty franchise locations under development agreement almost equally split between domestic and international markets.

This acquisition is transformative Chanticleers company owned restaurant count increases by 33% while increasing the companys presence in the fast growing fast casual segment. BGRs burgers are highly acclaimed. Its model of using Prime, dry-aged burgers grilled over an open flame and sourcing freshly baked buns from local bakers is transferable and can be a differentiating factor for the company. The average BGR restaurant does $1.5 million in sales per year.

Growth Strategy

Chanticleer has been growing rapidly both by organic growth and acquisitions, as illustrated below.

The closing of BGR: The Burger Joint will bring its total number of restaurants to 48.

The company also has plans to continue to expand the Hooters brand internationally. The company has exclusive franchise rights to develop and operate Hooters in South Africa with Durban, South Africa being Chanticleers first location. The company currently has five locations in South Africa with a six location re-opening in Cape Town in mid-2015. The total market opportunity in South Africa is fifteen locations or ten additional locations.

In Australia, Chanticleer has a JV agreement with existing Hooters franchisee. The company has 60% interest in four restaurants in Australia, with one more opening in early 2015. The company believes the total market opportunity of fifteen restaurants.

In Europe, Chanticleer currently has two locations, one in the England and one in Hungary. In Eastern Europe, the company owns 80% of Crown Restaurants collaborating with Crown Restaurants CEO Alex Hemingway. Mr. Hemingway previously worked as President and CEO of CEFG, owners and operators of Pizza Hut and KFC brands in Hungary. The company is evaluating two more locations in England and one in Poland. The overall market potential in Eastern Europe is eighteen restaurants.

Chanticleer has two locations in Oregon and Washington and sees a potential to add three more locations.

The Hooters locations are particularly attractive opportunities due to the high sales per location. Over the past two years, the company has acquired five Hooters locations (two in the Pacific Northwest, two in Australia and one in England). The total acquisition price for these five locations was $12.8 million with $12 million in annualized sales acquired or an average of $2.4 million in sales per location.

Acquisition Strategy

As illustrated, Chanticleer has been very acquisitive. This strategy has been working extremely well for the company. The chart above illustrates the companys location count increased from one at the end of 2009 to twenty six at the end of 2014. This strategy has worked as the company is able to acquired locations and leverage the existing administrative infrastructure eliminating selling, general and administrative expenses (SG&A) creating a significant amount of operating leverage. A big impediment to profitability has been the large SG&A relative to the revenue base. As illustrated in the chart below, the company continues to grow its top line much faster than its SG&A leading to a fall from 84% of sales in 2011 to 15% of sales at the end of Q4 2015.

SG&A per location has decreased from $1.15 million at the end of 2009 to $229,230 in Q3 2014.

Rights Offering

To fund the acquisition of BGR, continuing operations and future restaurant openings, Chanticleer is currently undertaking a rights offering with the goal of raising a gross amount of $17 million and a net amount of $15.64 million. The subscription period ends on March 13, 2015. The cash will provide ample resources for growth as the BGR acquisition will only cost $5 million.

Valuation

Chanticleer is significantly undervalued relative to peers. Assuming a median Price/Sales of its restaurant peer group, there is 110% upside. This does not account for the significant growth the company will see over the next few years or the value of iconic Hooters Brand.

Given Chanticleers growth potential and the transformative nature of the BGR acquisition, it is more appropriate to look at the growth of Chanticleer over the next few years. The table below illustrates very realistic target for Chanticleer with regard to location openings as well as revenue per location figures.

Conclusion

Chanticleer will close on a transformative transaction that will give the company the necessary scale to start a rapid growth trajectory. It has the market potential to quadruple its location count in the next five to ten years. Despite, this the company is trading at a significant discount to its peer group.Page 1 of 11