Dis­cover one of the most ex­cit­ing small cap sto­ries

Filta has al­ready cracked the US and UK; Canada is un­der­way and Europe could be next

Shares - - DISCLAIMER -

Fran­chise group Filta (FLTA:AIM) looks poised to ac­cel­er­ate its ge­o­graph­i­cal ex­pan­sion, mak­ing now an ideal time to buy the shares. It has just made its first move into Canada and we un­der­stand a deal to crack main­land Europe could be im­mi­nent.

It’s a re­ally sim­ple busi­ness to un­der­stand. It owns Fil­taFry which pro­vides ser­vices to com­mer­cial kitchens. It has 182 fran­chisees which pay Filta a monthly roy­alty for each mobile fil­tra­tion unit supplied by the plc com­pany.

Filta also earns a mar­gin on waste oil sales and pro­vid­ing sup­plies such as chem­i­cals to fran­chisees, as well as charg­ing an ad­min­is­tra­tion fee on some of the larger ac­counts.

The fran­chisees clean deep fry­ers and fil­ter the oil used to cook food. One of the big­gest mar­kets is sports are­nas and sta­di­ums in the US. It also serves schools, hos­pi­tals, uni­ver­si­ties, casi­nos, ho­tels and cor­po­ra­tions. Many of the con­tracts in­volve be­ing an ap­proved ven­dor for some of the world’s big­gest ca­ter­ing com­pa­nies in­clud­ing Com­pass (CPG) and Sodexo.

We alerted read­ers to the stock’s po­ten­tial three months ago. Since then, Filta has is­sued a pos­i­tive trad­ing up­date (7 Aug), bought a drain ser­vices busi­ness which strength­ens its po­si­tion in the UK and re­ported very strong half year re­sults (7 Sep).

It boosted un­der­ly­ing op­er­at­ing profit for the six months to 30 June by 62% and lifted gross profit mar­gins from 43% to 46%, year-on-year.

CASHED UP, READY TO GO

The com­pany al­lo­cated £2.9m from its Novem­ber 2016 IPO (ini­tial pub­lic of­fer­ing) fundrais­ing to en­ter new lo­cal mar­kets in­clud­ing Canada and Europe, as well as launch new ser­vices in ex­ist­ing mar­kets (UK and US) and as work­ing cap­i­tal.

Chief ex­ec­u­tive Ja­son Say­ers re­veals to Shares that Filta is talk­ing to two mas­ter fran­chise hold­ers in Ger­many and Benelux ‘about a dif­fer­ent way of do­ing Europe be­tween us’. He says Europe ex­pan­sion would still be done as a fran­chise model.

Its first fran­chise agree­ment in Canada was signed in June and trad­ing be­gan in Au­gust. The fran­chisee al­ready has 300 cus­tomers to whom it de­liv­ers gro­ceries, so it is hoped that per­suad­ing them to also have fryer clean­ing ser­vices should be an easy win.

Filta trades on 23.3 times fore­cast earn­ings for 2018 which we don’t see as ex­ces­sive given low cap­i­tal ex­pen­di­ture re­quire­ments, high mar­gins, lots of re­cur­ring rev­enue and strong cash flow po­ten­tial.

It is fore­cast to pay 2.3p div­i­dend next year, im­ply­ing a 1.4% yield. We ex­pect the yield to in­crease sig­nif­i­cantly as the busi­ness gains scale and its fran­chisees start pro­vid­ing more ser­vices to cus­tomers. (DC)

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