- London-listed firm buys its largest competitor as ‘launchpad’ into Europe
Tortilla Mexican Grill has consolidated its position in the European fast-casual Mexican restaurant market with the acquisition of its largest competitor.
The London-listed firm told shareholders it had acquired France’s Fresh Burritos for a total consideration of €3.95million (£3.33million), thereby taking on its brand, 13 company-owned leasehold restaurants across Paris and other major cities, and a network of 19 franchised locations.
Funded via a mix of cash payments and existing debt facilities, the deal forms part of Tortilla’s ‘Vital Five’ growth strategy, which aims to develop the brand internationally and ‘double-down on franchise’.
Tortilla said the deal ‘provides a springboard for franchise growth across Europe’, while providing ‘compelling synergies for the enlarged group’.
Tortilla Mexican Grill moves to consolidate dominant position in Europe’s Mexican food market
The acquisition is expected to contribute £2.5million of additional annual adjusted earnings before nasties 24 months after completion.
In the meantime, the deal is forecast to generate an adjusted earnings loss of £500,000 this year before adding £500,000 in profit in 2025.
Fresh Burritos delivered revenues of €9million and a loss before tax of €100,000 in its last financial year.
Andy Naylor, Tortilla boss, said: ‘With Mexican cuisine surging in popularity, these prime French locations give us a solid launchpad. We’re set to leverage this acquisition, just in time for the Paris Olympics.
‘The brand synergies are clear, a new central kitchen is in the works, and our dedicated team is raring to go. We’re primed for sustainable growth abroad.’
Tortilla Mexican Grill shares were up 6.7 per cent to 55.5p by mid-afternoon on Tuesday, bringing 2024 gains to around 15.7 per cent.
However, the shares have lost more than 70 per cent of their value since listing in October 2021.
Broker says Tortilla shares could more than double
Tortilla is the largest fast-casual Mexican group in the UK and Europe, with 89 locations, and is now more than twice the size of its nearest European competitor.
The group hopes to capitalise on the growing global Mexican food market, which is expected to grow to $114billion by 2026, according to Technavio Research figures cited by Tortilla.
But it was forced to lower profit expectations in December on the back of weaker consumer confidence hitting sales across the eating-out sector.
It said on Tuesday that its core UK business is trading in line with the full year expectations ahead of a market update in July.
Liberum analyst Anna Barnfather reiterated the broker’s ‘buy’ rating of Tortilla, which it believes looks undervalued.
She said: ‘The shares have been flat over the last month but are up…[year-to-date].
‘However, this is still down 44 per cent versus a year ago…[and] at a discount to the UK restaurant sector on 6.8x and a significant discount to US restaurant peers on an average of 14.8x.
‘Furthermore, at these levels, the entire business (market cap c.£20million) is valued roughly equally to one [US competitor] Chipotle store (Market cap of £69.2billon, which is equivalent to £20.1million per owned store).
‘Our target price of 115p is based on a blend of [discounted cash flow and return on employed capital] and peer comparisons and implies an 8x multiple for FY24E.
‘This still represents 120 per cent upside for Europe’s largest burrito-led business. Major catalysts include improving sales growth and margin-rebuild.’
