M&C Report gives a round up of the analyst reaction to Prezzo’s full-year results, which were announced this morning and saw the group report a 14% rise in pre-tax profit to £16.4m and said it would add a further 20 sites to its estate over its next financial year. Douglas Jack at Numis said: “FY11 PBT is up 14% to £16.4m, which is ahead (our forecast £16.1m; consensus £16.1m), driven by expansion and growth in average unit profitability. Prezzo has no debt, but has used most of its spare net cash to buy freeholds. We are holding our forecasts, which assume no LFL sales or margin growth in 2012E. “There is "some evidence that the UK consumer has been more cautious in the early months of 2012" according to the outlook statement. This, coupled with the uncertainty over trading during the Olympics, leads us to leave our forecasts unchanged despite the business beating our forecasts in FY11. “Prezzo has a substantial development pipeline for 2012E having added a net 24 sites in 2011. This level of expansion, up from just two new sites in 2009, reflects the good returns that are being achieved. We estimate new sites are paying back within four years, on average. “We are holding our 2012E forecast (PBT £17.3m; consensus £17.6m) which assumes flat LFL sales and slight margin dilution. 2012E has had difficult start and both Euro 2012 and the Olympics are likely to be detrimental. The valuation of 11.1% equity free cash flow yield (6.6x EV/EBITDA; 12.3x P/E) for a debt-free restaurateur (c.10% of the estate is freehold) is fair, in our view. We estimate that the company can achieve c.10% self-financed earnings growth from expansion, but expect average profit growth to stall in the short-term.” Lindsey Kerrigan at Panmure Gordon, said: “Prezzo has issued a robust set of FY2011 results. We remain broadly upbeat on the prospects for eating out in the UK and the group has the opportunity to expand outside its South East heartland. The stock currently trades on a 2012E P/E of 11.8x and an adjusted EV/EBITDAR of 6.9x, with a yield of just 0.4%. However in our opinion the stock is fully valued at this level, with some exposure to record petrol prices and we reiterate our Hold recommendation and 63p price target. “We forecast double-digit growth in earnings driven by new restaurant openings and LFL sales growth, combined with modest margin expansion reflecting scale benefits; For 2012E, we forecast £17.8m PBT (5.7p EPS) rising to £19.6m PBT (6.3p EPS) in 2013E, in line with consensus of £17.7m (5.5p EPS) in 2012E rising to £19.6m (6.1p EPS) in 2013E. We don’t expect any change to consensus at this stage. “The stock currently trades on a 2012E P/E of 11.8x and an adjusted EV/EBITDAR of 6.9x, with a yield of just 0.4%. We reiterate our Hold recommendation and 63p TP.” Nick Batram at Peel Hunt, said: “Prezzo is a well-managed, well-financed business that continues to perform well in a difficult market. There is good momentum in the new site pipeline and whilst 2012 is likely to be challenging, we expect further bottom line progress. The shares have been re-rated but we believe that there is further to go.” Wayne Collins at Hutton Collins, said: “Prezzo remains a highly cash generative business with translation of EBITDA into cash running ahead of 100%. It is this high level of cash generation that is supporting the fast pace of the roll out and the acquisition of freeholds, of which 7 (2010: 5) were acquired during the year at a cost of £6.4m (2010: £8.2m). “Prezzo has accelerated its rate of openings over the past two years (expanding 37% since 2009) as it takes advantage of a more benign property market and the distress of other operators. This should deliver increased economies of scale and benefit margins over the medium term. Profits since 2009 have grown 28% (lagging estate growth) as EBITDA margins have fallen 110bps since 2009. Whilst the economic backdrop remains challenging, we believe that the maturing of sites, an easing of input cost pressures combined with a well invested marketing / promotional activity should underpin organic growth and margin recovery. “Despite a slow start to 2012, we feel its South/South East bias combined with structural growth in the eating out market bodes well for future growth. Today’s announcement also highlights the successful openings of its first transport hub location, and increased confidence in its secondary brand: Chimichanga and at least 20 openings for 2012E. There are several key growth drivers available. As free cash flow builds, these are likely to be directed towards increasing the rollout and/or make selective bolt-on site acquisitions. We do not feel that Prezzo will increase its dividend ahead of the current 0.4% yield and excess cash is likely to be invested into freeholds which now equates for 16% of the estate vs. 13% last year. We forecast 11.6% EPS CAGR over the next three years supported by 20 new openings p.a (estate growth of 10-13% p.a) and LFL sales of 2%. “The track record of the Kaye family (Philip Kaye owns c.48%) underpins our long term stance in the ability to build significant shareholder value.”