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  • Writer's pictureMark Watson-Mitchell

Tortilla Mexican Grill – showing strong first half sales growth and progress in expansion strategy

This morning’s Trading Update from Tortilla Mexican Grill (LON:MEX) shows that the expanding restaurants group is still growing at quite a pace.

The UK’s largest fast-casual Mexican foods company has grown significantly from its Islington base in 2007. It floated on AIM in October 2021.

Its aim is to offer its customers freshly made Californian-inspired Mexican cuisine, such as burritos, tacos and salads. There is growing demand for its excellent healthy, value-for-money meals, whose average main dish price is in the £7-£9 price levels.

The group is now up to 84 sites, 68 of which are in the UK, as well as eight franchised in the United Arab Emirates, and another eight franchised in the UK.

Some 41% of the group’s own operated sites are located outside the M25.

When it floated last year, the group stated that it had an aim to add another 45 sites within the next five years.

The most recent announcement from the company was in May, when it made the £2.75m acquisition of the eight-site Chilango chain. It is a natural fit with the group’s ambitions.

The incredible economies of scale, with greater buying power and tight central overheads, will keep on kicking in as this phase continues.

Especially if it grows its multi-channel growth opportunities like food-to-go, dine-in and delivery.

Furthermore, it can rely on its ability to increase prices if its costs drive higher.

The first six months in 2022

Today’s Update for the group’s six months to 3 July showed revenues of £26.9m, which was some 60% better than the comparative period in 2019.

The group opened six new sites in its first half-year and the cash balance of £3.1m at the period end is considered sufficient to fund the group’s future expansion plans.

The company is on track to open another three new sites in its second half.

Richard Morris, the company’s CEO stated that

"We are pleased to report further strong growth and strategic progress during the first half supported by our strong reputation for great value and our growing UK presence. During the period we sold more than 3.2m burritos and completed the exciting acquisition of Chilango to bolster our leadership position in the UK's fast-casual Mexican market. Chilango hold leases in several strong London locations and provide a high-quality supplementary food offer".

"We have continued to outperform the sector according to relevant industry benchmarks and remain confident in the Group's long-term growth prospects. Our site-roll out continues as planned in line with the target set out at IPO, with further opportunities supported by the favourable rental environment."

Obviously, the company has been suffering, like one and all, from the hassles of supply and cost inflation, Morris went on to state that

"Whilst the macroeconomic environment remains challenging, we are working hard to mitigate cost pressures as much as we can and are mindful of the impact on the consumer of the cost-of-living crisis. However, we remain very confident that supported by our strong reputation for outstanding value, excellent delivery proposition, and growing UK presence we are well positioned for long term growth."

Analyst estimates for the full year

Broker’s estimates from Liberum Capital suggest that the full year sales to end December will be around £62.0m (£48.1m). That could give pre-tax profits of £3.9m and earnings of 8.1p per share.

Looking forward to next year, without the benefits of any accretive acquisitions, broker’s analyst Anna Barnfather is looking for £74.5m revenues, profits of £4.3m, and earnings of 8.0p per share.

She is more adventurous with her estimates for the 2024 year, with ££85.4m takings, £5.7m profits and 9.8p earnings.

After the Chilango purchase, Liberum, the group’s NOMAD and broker, upped its Target Price from 222p to 235p for the group’s shares, after this morning’s Update that price objective remains the same, with the shares, now 121.5p being rated as a Buy.

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