Franchise Brands’ (FRAN:AIM) acquisition of Pirtek Europe gives it a springboard to scale its European footprint and accelerate growth of its existing business-to-business services.

The combined group will become one of the world’s largest business-to-business franchise groups with over 310 franchisees operating across 10 countries.

The share price recently fell 25% to reflect a discounted equity raise (at 180p) used to partially finance the acquisition. The shares have since dropped further and sit 32% below where they traded before the Pirtek deal. This looks anomalous given the deal is expected to be earnings accretive in the first year of ownership. Earnings per share should increase 11% in 2023 and 18% in 2024, according to Allenby Capital forecasts.

Shares believes the share price weakness presents a great opportunity for savvy investors to jump on board for the next leg of Franchise Brands’ exciting growth journey.

Investors get immediate exposure to an established franchise operation covering multiple areas including plumbing, grease management and pumps as well as the potential to unlock significant organic growth via a broader service offering, cross-selling opportunities and geographic expansion.

Pirtek is an established high quality European provider of mission critical, emergency response (one hour) on-site hydraulic hose replacement and related services from a fleet of 838 vans. It has built a diverse portfolio of tens of thousands of customers across several end markets.

Since listing on AIM in 2016, Franchise Brands has grown adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) almost 12-fold, from £1.3 million to £15.3 million with growth evenly split between organic gains and acquisitions.

The business is steered by Stephen Hemsley, the man who helped make the UK franchise operations of Domino’s Pizza a big success.

The firm’s key brands have big opportunities to grow their market share. For example, Franchise Brands owns commercial kitchen services group Filta, which was purchased in March 2022 and operates principally in the US where it has little competition. System sales are $100 million compared with a potential market opportunity of $925 million, according to analyst Sam Dindol at Stifel.

Franchise Brands has taken on £110 million of debt to part-fund the Pirtek acquisition and for working capital and organic growth. Management expects to fully repay the debt over five years
while growing the enlarged business. Net debt to EBITDA is expected to fall from 2.3-times to 0.3-times in 2026.

Over time this means shareholders get rewarded as more cash flows into their pockets through dividends instead of the banks.

‹ Previous2023-05-04Next ›