MTY - MTY Food Group

[mranski]

I like the look of this company. Anyone have a contrary or corroborating opinion or a post previously.

 

STRENGTHS

Ongoing fee based franchse income, minimal company staff.

Some decent brands, a few cigar butts, some I don't know, diversity of brands.

Excellent ROE

Low Debt

Decent Growth

Conservative management, shareholder oriented, good track record

 

WEAKNESSES

Tough sector food retailing

Integration risk of new brands, acquisitions

Price a bit ahead of results.

 

Any opinion would be appreciated

 

 

[jeffmori7]

I am a shareholder too.

 

What I like about this company is as you said, some decent brands first : Sushi Shop, Thai Express, Cultures, etc. are all brands really popular here in Montreal. We see them a lot in the commercial centers. With the recent trend of "healthy" fast food (unlike burgers or pizza), I think these brands will stay popular and there were there in the beginning so customers are now used to these names.

 

I also like the management, with Stanley Ma possessing 27% of the share I think and a conservative management financing new acquisition with cash flow only, without using debt.

 

They grow mainly by acquisition, but I think there is still room to expand the different brands all across Canada. From what I know, they are mainly present in Quebec and Ontario for now. I know they have some restaurants in Middle East too!

 

On the negative side, sales are not that strong on a year over year basis for existing places.

 

Good to know that I am not alone as a shareholder on this board!

[beerbaron]

Not exactly a value stock

[mranski]

Didn't mean to suggest i'm a shareholder, i am seriously looking at it.

 

Seems overvalued at $14 as I think beerbaron is suggesting.

[jeffmori7]

Didn't say either that it is a good investment at the current price. I'm just saying that it is a good "growth" company.

 

Also, it just started paying a dividend this year to return a part of the always increasing benefit to the shareholders. I prefer that than too expansive acquisition.

[mranski]

An article about the man. Will be interesting to see if Mr Sub can be revitalized.

 

http://www.theglobeandmail.com/report-on-business/careers/careers-leadership/the-lunch/stanley-ma-an-empire-on-a-plastic-tray/article2195065/

 

 

[mranski]

MTY controls its own food court. Probably done before but i haven't heard of this idea.

 

http://www.theglobeandmail.com/globe-investor/news-sources/?data-ipsquote-timestamp=20120201&archive=cnw&slug=C8532

 

 

[ItsAValueTrap]

I figure I'd bump this thread even though I don't own any shares.  Congratulations to anybody who bought and held this stock.

 

The history of MTY Food Group is *really* interesting in my opinion.  It started out on the Vancouver Stock Exchange (now the TSX Venture), which is kinda shady.  I think back then conglomerates may have been a big thing for these small shady stocks.  Northfield Capital started out that way.  Maybe should who was around back then could give more information on that.

 

Anyways, for roughly a decade the stock went nowhere.  Stanley Ma owned less than 5% of the company.  MTY back then was involved in a number of other businesses such as selling parking equipment in China.  The other ventures eventually all lost money.  They definitely chased the Internet bubble back then.  Then the bubble burst and the stock started trading below book value.  2003 was a landmark year for Ma as he turned MTY into a pure-play restaurant business and got rid of the Internet bubble business.  He also bought a huge chunk of the company in a large private transaction, boosting his ownership to around a quarter of the company.  He probably didn't anticipate what would come next, but his shares went up 130X times.

 

His first decade was miserable and then his shares just shot to the moon.

 

http://glennchan.wordpress.com/2013/10/22/mty-food-group-mty-to-fast-food-faster-growth/

[buylowersellhigh]

I figure I'd bump this thread even though I don't own any shares.  Congratulations to anybody who bought and held this stock.

 

The history of MTY Food Group is *really* interesting in my opinion.  It started out on the Vancouver Stock Exchange (now the TSX Venture), which is kinda shady.  I think back then conglomerates may have been a big thing for these small shady stocks.  Northfield Capital started out that way.  Maybe should who was around back then could give more information on that.

 

Anyways, for roughly a decade the stock went nowhere.  Stanley Ma owned less than 5% of the company.  MTY back then was involved in a number of other businesses such as selling parking equipment in China.  The other ventures eventually all lost money.  They definitely chased the Internet bubble back then.  Then the bubble burst and the stock started trading below book value.  2003 was a landmark year for Ma as he turned MTY into a pure-play restaurant business and got rid of the Internet bubble business.  He also bought a huge chunk of the company in a large private transaction, boosting his ownership to around a quarter of the company.  He probably didn't anticipate what would come next, but his shares went up 130X times.

 

His first decade was miserable and then his shares just shot to the moon.

 

http://glennchan.wordpress.com/2013/10/22/mty-food-group-mty-to-fast-food-faster-growth/

 

 

Now it's at 32. Definitely not cheap...

[Guest notorious546]

Q3/15 results are out

 

http://mtygroup.com/wp-content/uploads/2015/06/MTY-Food-Group-August-31-2015-final-e.pdf

 

 

[Guest notorious546]

MTY Food Group (MTY.TO)

 

Montreal-based MTY has consistently earned an ROE in excess of 20 per cent over the past decade. MTY operates a number of fast food restaurant chains in Canada, and with the stock having been in consolidation mode for the past year and a half, now trades on 12.5x 2016 earnings, which we think is very reasonable for a steady growth company with an unlevered balance sheet.

 

http://www.theglobeandmail.com/globe-investor/investment-ideas/three-top-stock-picks-from-donville-kents-jason-donville/article29070170/

[Guest notorious546]

MTY announced acquisition of Kahala Brands

 

http://mtygroup.com/wp-content/uploads/2015/06/20160525-MTY-enters-into-an-agreement-to-acquire-the-shares-of-Kahala-Brands-v7.pdf

 

During the 12 months following the acquisition, the combined entity is expected to generate over C$90 million in EBITDA,

C$250 million in revenues and C$2 billion in system sales. The transaction is expected to be immediately accretive. The

combined entity will have a portfolio of approximately 5,500 stores under 57 brands

 

Total consideration for the transaction is estimated at US$300 million, satisfied by the issuance of 2,253,930 shares of MTY and

the payment of US$240 million in cash. The final purchase price remains subject to customary working capital adjustments. The

cash component of the consideration will be financed by MTY’s cash on hand and by the new credit facility that is presently being

arranged. TD Securities will act as the sole Lead Arranger and Bookrunner for a syndicate of lenders. The new credit facility is

expected to provide enough flexibility for MTY to complete additional acquisitions in respect of future opportunities that might

become available to MTY and continue to pay and adjust its dividend in accordance with its dividend policy.

[frommi]

Really interesting that this is flying under the radar, its still small, has compounded @20% for a long time and even after the merger its still available at nearly fair prices. Based on my calculation its value has gone up nearly 25% with the merger, so the jump in the stock price is warranted.

[Liberty]

Really interesting that this is flying under the radar, its still small, has compounded @20% for a long time and even after the merger its still available at nearly fair prices. Based on my calculation its value has gone up nearly 25% with the merger, so the jump in the stock price is warranted.

 

It is fairly popular among investors in Canada (or at least in the East), along with Couche Tard (ATD.B). Probably not that well known outside of the country, though.

[gary17]

it hasn't done much over the last year so the share price has been 'cheaper' than some of the higher profile names like CSU .... on a pE basis.....  i have a small position and am glad to see this acquisition. 

 

not sure the acquired company has much debt - not much info provided.

 

 

Gary

[frommi]

it hasn't done much over the last year so the share price has been 'cheaper' than some of the higher profile names like CSU .... on a pE basis.....  i have a small position and am glad to see this acquisition. 

 

not sure the acquired company has much debt - not much info provided.

 

 

Gary

 

I was really lucky here, found it over the weekend while reading a book about 100 baggers which mentioned Donville. He profiled it in one of his latest letters. Because it is a dividend grower i was immediatly interested and after reading about the company for around one hour i built a 4% position yesterday. So my return on reading the book is already approaching several thousand percent. :)

 

Regarding the debt i assumed that the purchase price includes that and that MTY has ~290 million CAD$ in debt after the transaction.

[Liberty]

You built a 4% position after knowing the company for 1 hour? I suppose that's what's called firing from the hip. Glad it's working out well for you.

[frommi]

It is fairly popular among investors in Canada (or at least in the East), along with Couche Tard (ATD.B). Probably not that well known outside of the country, though.

 

Thanks for dropping the ticker, i added ATD to my list. Looks like i should look more at compounders in canada.

[frommi]

You built a 4% position after knowing the company for 1 hour? I suppose that's what's called firing from the hip. Glad it's working out well for you.

 

What do you get out of the n`th hour researching a stock? I look up the history of the numbers in morningstar or gurufocus, think about the business (moat, etc.) for some minutes, fly over the annual report reading whats interesting to me and then add the numbers to my spreadsheet. After that i maybe read some SA articles or look if i find a writeup in VIC. Most of the time i know enough to pull the trigger after that. But with 4% positions i have room for mistakes and i mainly clone others, so my picks are already filtered.

I doubt that more information is helpful to make better returns, probably the opposite is the case. Its impossible to know what happens exactly in the future, so more information probably leads only to overconfidence.

[Liberty]

You built a 4% position after knowing the company for 1 hour? I suppose that's what's called firing from the hip. Glad it's working out well for you.

 

What do you get out of the n`th hour researching a stock? I look up the history of the numbers in morningstar or gurufocus, think about the business (moat, etc.) for some minutes, fly over the annual report reading whats interesting to me and then add the numbers to my spreadsheet. After that i maybe read some SA articles or look if i find a writeup in VIC. Most of the time i know enough to pull the trigger after that. But with 4% positions i have room for mistakes and i mainly clone others, so my picks are already filtered.

I doubt that more information is helpful to make better returns, probably the opposite is the case. Its impossible to know what happens exactly in the future, so more information probably leads only to overconfidence.

 

I think it's useful to know the industry dynamics, the management's approach, who the competitors are, any potential regulatory problems on the horizon, looking at the filings and transcripts, etc. But to each their own.

[frommi]

I think it's useful to know the industry dynamics, the management's approach, who the competitors are, any potential regulatory problems on the horizon looks at the filings and transcripts, etc. But to each their own.

 

Ok maybe i exaggerated a bit, don`t know if it was just one hour, maybe two but surely not more.

In this case there was a writeup in Donville`s letter, an annual report/ letter,  one or two conference call transscripts, a VIC writeup and i think 2 or 3 SA articles. But you are right, to each his own. :)

[gary17]

I think the biggest risk to this business is if people stop going to shopping malls to eat

 

Gary

[Guest notorious546]

I think the biggest risk to this business is if people stop going to shopping malls to eat

Gary

 

I think this is definitely a trend but i'm not too sure on how many of the company's locations are in lower quality malls which are likely to be hit the hardest.

 

If anyone has any datasets to share i'd be interested in seeing.

[ScottHall]

I haven't looked closely at this one, but I'm impressed at what they've managed to do.

 

The biggest concern that strikes out at me is that - at least recently - there are more franchisees shutting down than opening up. They've only grown store count recently from acquisitions.

 

On a related note, systemwide comps have been negative for quite a while. How many franchisees are just barely hanging on? Maybe these concepts are big in Canada, I have no idea, but a lot of them seem like they could be second or third tier ideas.

 

Franchise businesses can have great economics, just like this one does. But you often don't know how the underlying franchisees are doing, which is what the long term sustainability of such a business is based on. I haven't taken a close look at the filings to see if any of this is disclosed beyond what I just covered. Has anyone else?

 

The disclosed terms of the Coldstone deal seem pretty good for MTY. I'm not sure if the stock is cheap or not here, but it seems at least worth a closer look.

[Guest notorious546]

http://business.financialpost.com/news/retail-marketing/cultures-thai-express-owner-mty-foods-set-to-double-in-size-with-acquisition-of-arizonas-kahala-chain

 

Although there is some risk involved in stepping into the U.S. market, Jesse Gamble, an associate portfolio manager at Donville Kent Asset Management, says the conservative nature of MTY’s management team makes him confident this is a well-planned decision.

 

“We’ve known something like this has been coming for a while … we understood that if they did a deal it would be the right deal and we trust in them,” said Gamble.

 

“This is just a game they have to play because they are a growth by acquisition company and as you get bigger, you have to do bigger deals.”

 

Following the news of the acquisition, MTY’s stock popped 16.48 per cent to $41.56 by 12:03 and even at these levels Gamble says the stock is undervalued as the company has now doubled its size and issued just 20 per cent equity.

 

“Based on simple numbers like this you know how much value this is going to create,” he said.