Prezzo expects its eponymous brand to continue to dominate its opening programme this current year despite the growth of its Chimichanga and Cleaver concepts, chief executive Jonathan Kaye has told M&C Report.
The company yesterday said it planned to open 25-30 new restaurants this year. Kaye said he expects around six openings to be Chimichangas and around four to be Cleavers. “The majority are Prezzo - there’s no question about that.
“Prezzo is a proven brand with tremendous brand loyalties around the country, and a performance that only improves.”
The Cleaver concept has expanded to four sites after the first opened last summer in Cobham, Surrey. Further openings are planned in Billericay and Welwyn Garden City.
Kaye said: “Our expectation was that we could build another brand. At this stage that looks like a possibility, but with four branches it’s a very long way off.
“We’ve got four restaurants and we’re doing alright. That’s a good sign. We’ve got another few planned and we’ll keep track of where we are after every opening.”
Currently the firm, which opened 27 net restaurants last year, operates 194 Prezzo sites and 37 Chimichangas.
Kaye said the company is “in the process of altering” the way it uses vouchers, although he declined to give details.
“The reality is they are important to the Italian casual dining market, there’s no doubt about it. But I don’t begrudge that. It’s worked well for us and it will continue to work well, and I think while everyone is offering them, that’s where we are - it doesn’t seem to be causing us too much harm.”
Prezzo yesterday morning reported a 13% rise in adjusted EBITDA to £28.9m in the year to 29 December on revenue up 15% to £166.5m. Adjusted pre-tax profits for the group, which opened 28 restaurants in the period, increased by 11% to £20.4m.
Asked if trading in the current year to date has been stronger, Kaye said: “I think that’s fair to say.”
Last year Prezzo introduced an app that lets customers pay via PayPal using their smartphone. Kaye said use of the system so far has been “negligible”.
“It’s pretty new but I think it’s something that will grow and we’ll raise awareness of it in our stores as well. There’s big backing from PayPal.”
Analysts
Douglas Jack at Numis reiterated his Hold recommendation for Prezzo at a Target Price of 155p.
Prezzo’s growth in pre-tax profit was in line with his forecast, Jack said.
“Against a backdrop of store space growing by 12.5%, we estimate average sales grew 2.5% and average outlet profits grew 3.6%. We are holding our forecasts, but our stance remains Hold, reflecting what we view as a very full rating.
“Average sales rose 2.5% in 2013 (3.6% in H1; 0.8% in H2), by our estimates. Trading conditions were reasonably good, albeit with easier comps in H1 than in H2, particularly for the c.10% of sites close to cinemas.
“EBIT margins fell 40bps (H1 -45bps; H2 -32bps) despite total sales growing 15.3%. With the depreciation charge rate up slightly, EBITDA margins fell 28bps. EBITDA margins were up 20bps at outlet level, aided by higher average sales and less discounting; the decline in group EBIT margins was caused by extra central costs relating to training, marketing and facilities management.
“The size of the estate grew by 12.5% (31 openings and five closures in 2012; 28 openings and one closure in 2012). There are now 237 restaurants, including: 194 Prezzo; 37 Chimichanga; and four Cleaver. The company expects to open 28 new restaurants in 2014E (18 Prezzo, seven Chimichanga and three Cleaver).
“We are holding our 2014E PBT forecast (at £22.4m; consensus £22.0m). This assumes like-for-like sales rise 0.5% and that margins fall 20bps.
“Prezzo’s rating has doubled to 20x P/E and 11x EV/EBITDA relative to its 2008-12 average (10.3 P/E; 5.0x EV/EBITDA), following the trend at The Restaurant Group. However, unlike The Restaurant Group, Prezzo’s trading is weaker than it was during 2008-12. Given this and the restaurant sector growing supply at 6% vs. 2% demand growth, we believe Prezzo’s valuation is too high.”
Simon French at Panmure Gordon reiterated his Buy recommendation and 197p Target Price, saying results were “marginally ahead of expectations”, reporting £20.4m PBT (6.9p EPS) compared to consensus expectations of £20.2m PBT and his forecast of £20.0m PBT.
“The group has made an encouraging start to 2014 and is targeting 25-30 new site openings this year. We don’t envisage any material change to consensus expectations for 2014 of £22.5m and the stock trades on a 2014E adjusted EV/EBITDAR of c10x and given the forecast upgrade potential and discount to The Restaurant Group we reiterate our Buy recommendation and 197p Target Price.”
