Leading analyst Simon French has said that the recently listed Eclectic Bar Group represents a unique investment opportunity, stating that the 20-strong business could eventually triple in size and initiated coverage with a Buy recommendation and 210p Target Price.
The company, in which Jim Fallow is non-executive chairman and Clive Watson a non-executive director, raised £15m at IPO at the end of last year of which £1.8m will be used to grow the business from 20 to c30 sites by 2017.
French said: “Between August 2012 and October 2013, Eclectic demonstrated its capability to operate a much larger business, with the management contract for PBR increasing the operation to 50 sites. As such, we think organic growth can be supplemented by bolt-on acquisitions as well as potential whole-business M&A.”
He forecasts c16% CAGR in net income over the next three years for the group: “The stock trades on a CY 2014E adjusted EV/EBITDAR of 6.9x compared to the peer group on 8.1x-11.5x. Development capital expenditure on 11 sites since 2009 has generated an average ROI of 54% in the 12 months post development or acquisition.”
French said that the company boasts an enviable financial track record, an established and entrepreneurial management team, and a clear plan and pipeline for growth.Conclusion
He said: “Eclectic provides investors with a unique investment opportunity within the pub and restaurant segment. The group has a track record of developing and opening newsites, and through the PBR management contract demonstrated it is capable of operating a much larger business.
“The net new money combined with an established yet entrepreneurial management team means the group is well positioned to further capitalise on expanding its market presence while delivering strong returns for new shareholders from capital appreciation and dividends.”
