- A London-listed company buys its largest competitor as a “launch pad” to Europe
Tortilla Mexican Grill has consolidated its position in the European market for fast-casual Mexican restaurants with the acquisition of its largest competitor.
The London-listed company told its shareholders it had acquired France’s Fresh Burritos for a total of €3.95m (£3.33m), acquiring its brand, 13 leased restaurants owned by the company in Paris and other major cities, and a network of 19 franchised locations.
Funded through a combination of cash payments and existing lines of credit, the deal forms part of Tortilla’s ‘Vital Five’ growth strategy, which aims to develop the brand internationally and ‘double the franchise’.
Tortilla said the deal “provides a springboard for franchise growth across Europe”, while also providing “compelling synergies for the enlarged group”.
Tortilla Mexican Grill moves forward to consolidate its dominant position in the Mexican food market in Europe
The acquisition is expected to deliver £2.5 million of additional adjusted annual earnings before the unpleasant 24 months after its completion.
Meanwhile, the deal is expected to generate an adjusted profit loss of £500,000 this year before adding £500,000 of profit in 2025.
Fresh Burritos generated revenue of €9 million and a pre-tax loss of €100,000 in its last financial year.
Andy Naylor, head of Tortilla, said: ‘With the growing popularity of Mexican cuisine, these great French locations give us a strong launching pad. We are ready to take advantage of this acquisition, just in time for the Paris Olympic Games.
‘The brand synergies are clear, a new central kitchen is in the works and our dedicated team is eager to get started. “We are prepared for sustainable growth abroad.”
Tortilla Mexican Grill Actions They rose 6.7 per cent to 55.5 pence by mid-afternoon on Tuesday, bringing 2024 gains to around 15.7 per cent.
However, the shares have lost more than 70 percent of their value since going public in October 2021.
Corredor says Tortilla shares could more than double
Tortilla is the largest Mexican fast-casual food group in the UK and Europe, with 89 locations, and is now more than twice the size of its closest European competitor.
The group hopes to capitalize on the growing global Mexican food market, which is expected to grow to $114 billion by 2026, according to Technavio Research figures cited by Tortilla.
But it was forced to lower profit expectations in December as weaker consumer confidence hit sales across the restaurant sector.
On Tuesday it said its core UK business is trading in line with full-year expectations ahead of a market update in July.
Liberum analyst Anna Barnfather reiterated the broker’s “buy” rating on Tortilla, which she believes appears undervalued.
She said: ‘Shares have been stable over the last month but are up… (so far this year).
‘However, this is still 44 per cent less than a year ago… (and) at a discount to the UK restaurant sector of 6.8 times and a significant discount to its US restaurant peers.’ US by an average of 14.8 times.
‘Furthermore, at these levels, the entire business (market capitalization of approximately £20m) is valued at approximately the same value as a Chipotle (US competitor) store (market capitalization of £69.2bn , which is equivalent to £20.1 million per own store).
‘Our 115p price target is based on a combination of (discounted cash flow and return on capital employed) and peer comparisons and implies an 8x FY24E multiple.
‘This still represents a 120 percent advantage for Europe’s largest burrito business. Key catalysts include improving sales growth and rebuilding margins.’
