Filta Group Holdings plc (LON:FLTA) announced that it remained EBITDA-positive in 1H’20, despite most of its customers closing for part of the period. Business is returning as customers reopen, with sports stadia expected to be the last to resume catering. Filta has used the period to reduce costs and improve its business model. We expect it to emerge as an even better business when COVID-19 is tamed. Our 2020 forecasts remain suspended.
- 1H’20 results: Revenue was down 32%, at £8m, and adjusted EBITDA came in at £200k, after a £300k bad debt provision. The company ended the half year with net debt of £1.9m, a small improvement on the year-end, showing the effectiveness of its cash management in a very tricky period.
- 2H’20 outlook: Business is picking up month-on-month, and is back to around 70% of pre-COVID-19 levels. Strong franchisees will prosper and weaker ones may not survive, but an economic downturn tends to lead to increased interest in franchise businesses, and Filta’s recurring revenue model is an attractive one. Filta has maintained its 40% gross margin and reduced fixed overheads.
- Valuation: Along with our forecasts, we have suspended our valuation.
- Risks: The clear risk for Filta is that COVID-19 returns aggressively and its customers are unable to stay open. In the UK-owned operations, the business is heavily weighted towards 20 large operations that are well positioned to survive. Its balance sheet is relatively strong, with cash balances and low net debt.
- Investment summary: Filta Group is an attractive business, in our view, combining the capital-light franchise model in North America and Europe with company-owned operations in the UK. As businesses continue to reopen, the focus on cleanliness, efficiency and environmental friendliness is unlikely to be abated.