Filta Group Holdings Plc – Decent Fundamental Growth Trajectory
Filta Group Holdings Plc (LON: FLTA) is an AIM-listed commercial company, which is a provider of numerous services to national and independent commercial kitchen operators and owners. The Group specialised in Grease & Drain Management and Fryer Management. It has over 7,000 customers and more than 450 vans.

Financial Highlights (FY2019)

(Source: Annual Report, Company Website)

On 18^th June 2020, the Group published its Annual report, with a sharp rise in annual revenue, but decided against a final dividend (due to COVID-19 mayhem).In FY19, the revenue was 75 per cent higher at GBP 24.9 million from GBP 14.2 million; numbers from the fryer management and cooking oil filtration showed an improved position. Revenue was supported by the GBP 8.6 million contribution from Watbio. Moreover, Fryer management revenue was up by 25 per cent to GBP 11.7 million (2018: GBP 9.3 million), FiltaSeal revenue increased by 18 per cent to GBP 1.9 million (2018: GBP 1.6 million), Organic revenue growth of 16 per cent, and Franchise Development revenue was GBP 1.5 million. Gross profit for FY19 increased by GBP 3.1 million or 44 per cent to GBP 10.2 million (2018: GBP 7.1 million). Adjusted EBITDA surged by 20 per cent to GBP 3.2 million in 2019 (2018: GBP 2.6 million) although the Adjusted EBITDA margin reduced to 12.7 per cent on the full-year spending impact of Watbio. The profit before tax was 46 per cent lower at GBP 936,284, due to an increase in administrative expenses. The Group had finished the year 2019, with net borrowings of GBP 2.1 million (2018: Net cash GBP 2.1 million) and a gross cash balance of GBP 2.9 million (2018: GBP 6.8 million). The management is not recommending the payment of a final dividend.

Share Price Performance

1-Year Chart as at June-19-2020, before the market close (Source: Refinitiv, Thomson Reuters)

Filta Group Holdings Plc’s shares were trading at GBX 133.50 on 19^th June 2020 (before the market close at 3:30 PM GMT+1), which was up by 25.94% against the last day closing price. Stock 52 weeks High and Low are GBX 245.40/GBX 42.00.

From the technical standpoint, its shares were trading well above its short-term support level of 20-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further.

Valuation Methodology


Valuation Metrics

(Source: LSE)

As on 29^th May 2020, Price to Earnings multiple of the FLTA was 22.9x, which was lower as compared with the Support Services industry. Hence, it is reflecting that the company is trading at a lower multiple as compared to its peers.

Growth Catalysts and Risk Factors
The Group witnessed some good performances from the other Company-owned businesses in the UK, whose revenue increased by 18 per cent and in North America, where revenue grew by 23 per cent. Filta has an impressive blue-chip customer base and cash generative business model. In the short-term, government policies of social distancing and lock-down are having a pronounced effect on the Group’s trading in its key geographic markets.

Conclusion
The Group delivered a robust start to the year, preceding to the lockdown, across all of the principal trading activities and in all of the operating territories. It has added 6 new franchises (includes 4 in North America and 2 in Continental Europe), which drives the income from sales of waste oil and Fryer Management. Moreover, the revenues from the UK Company-owned activities had been in line with expectations, with operating profit margins showing improvement over 2019 levels.

The acquisition of Filta with Watbio provided a platform for further growth in FOG(Fat, Oil and Grease) services and related activities and also gave a leading independent provider of grease management services in the UK. Watbio contributed 34 per cent of the Group’s revenue in 2019. Filta stays in a strong position and look forward to return to its trading levels as observed in the early part of the year.

Based on the decent prospects, which are supported by valuation done using the above method, we have given a “Speculative Buy” recommendation at the current price of GBX 110 (as on 19^th June 2020, before the market close at 8:00 AM GMT+1) with lower double-digit upside potential based 1.6x Peers NTM Average EV/Sales (approx.) on FY20E sales (approx.).
 
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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