The casual dining sector has taken, and continues to take, a real battering. The lure of cheap credit, a booming consumer discretionary spend, and the success of many restaurants has led to a surge in “me-too” restaurants.
However, over the past few years, they have begun to realise that simply copying is not enough, and there is no shortage of casualties in casual dining, with Gourmet Burger Kitchen, Byron Burger, Strada, Prezzo, Carluccios, Gaucho- all brands whom have previously enjoyed a large share of the market- downsizing while others have even gone bust.
There is more pain yet to come. With global markets looking downcast, AIM and small caps well into bear market territory, and the threat of a further decline in consumer spending, even more could face difficulties.
However, there is one casual dining business bucking the trend: Comptoir [LSE:COM]. In its FY results, the business recorded a revenue growth of 16.1pc to £34.3m.
Comptoir is loss-making, due to higher administrative expenses. However, if we strip out 2017’s exceptional profit from the sale of a property of £1,226,086 then the business has made great progress. It has a strong balance sheet and generates plenty of cash from operations, which it then reinvested into its operations.
With a NAV of £13.8m, the market cap at £14.4 million is currently pricing in a £600,000 premium for the brand itself. I believe that the business looks attractive – especially when it is growing in a sector that is seeing weakness across the board.
The business itself is a Lebanese restaurant with around 30 units. There is scope not only for like-for-like growth but also a nationwide rollout. This can really drive EPS when cash generated from profitable units is reinvested into other profitable units. This drove Crawshaw’s share price for years until it completely changed their strategy and destroyed its business.
Another thing that should not be skipped over is that the CEO, Chaker Hanna, decided to buy £475,000 worth of stock directly after the results. That’s not chicken feed, and in an illiquid stock like this he cannot sell. He was already holding over 17 million shares before this and with the purchase of another 4,750,000 this takes him to 18.4% of the entire issued share capital.
Comptoir has seen its share price hammered, but the recent results and director buy suggest a potential change of trend may be coming. Let’s take a closer look.
The stock has advanced and taken a breather. It’s teetering on its 200 EMA and 200 MA lines. I would want to see it hold here and go long with a break of 16p – that to me is the key level to break.
The stock is terribly illiquid and very often there is no bid on the RSP at the level quoted online. This is not a stock to buy should you wish to get in and out for a quick trade. In the event of any bad news, then the stock will gap down and anyone selling will be running for a crowded exit.
But illiquidity works both ways, and this can be an advantage to the private investor. Should there be good news and a scramble for stock then that can push the price up sharply – we saw this in April when the stock price ran from 9p to a high of 16p; a gain of 78pc in a matter of days.
You can hear more from Michael by downloading his fantastic free book ‘How to Make Six Figures in Stocks’. This can be downloaded from his website – https://www.shiftingshares.com/