# The Fulham Shore: Resilient first-half trading

- Link: https://www.directorstalkinterviews.com/the-fulham-shore-resilient-first-half-trading/4121096189
- Published: 2023-01-05T07:23:45+00:00
- Author: Amilia Stone

**Fulham Shore plc **(LON:FUL) reported robust trading in the first half, with revenues
up 26%, to £50m. Higher pre-opening costs and the absence of various COVID-19 support
measures restricted adjusted EBITDA to £6m (1H’22 £7m). However, the effect of the
cost-of-living crisis and, more immediately, the transport strikes, has hindered
current trading. The company is going to lower its expansion plans and focus on 
cash generation for the coming year. It has a strong balance sheet, with net cash
of £2.8m at the half-year and a largely unused bank facility of £17m.

 * **Strategy:** The UK restaurant sector hit a peak of outlets in 2015, before 
   shrinking under pressure on profitability. COVID-19 accelerated that process,
   and perhaps 17% of casual dining venues have closed from the high, leaving an
   opportunity for well-financed, well-managed firms like Fulham Shore to expand.
 * **Rollout:** Fulham Shore has two complementary brands – Franco Manca and The
   Real Greek – offering well-priced, authentic dining experiences. There is scope
   to grow the current 97 restaurants to more than 200. Profitability is resilient
   in the face of severe economic headwinds.
 * **Valuation:** A peer group EV/EBITDA multiple would put Fulham Shore on a price
   of 10p to 12p per share. We have also estimated the value of a 200-strong restaurant
   business discounted back to today, and come up with a central equity value of
   £137m, or 21p per share. A chain of 250 stretches that to 26p.
 * **Risks:** The key immediate risk is the impact of inflation on consumers’ wallets
   and confidence, and the rail strikes. After that, there is execution risk in 
   the rollout plans and ongoing cost pressures for both staff and ingredients. 
   Key to the success of growing the business is finding the right sites at the 
   right prices.
 * **Investment summary:** Fulham Shore management has many years of experience 
   in the UK casual dining sector. It has refined two restaurant concepts that are
   proven winners in a normal functioning market. The overcapacity in the sector
   seems to have been cleared out. This provides an ideal opportunity for a highly
   profitable rollout. Expansion can be readily funded from cashflow and the group’s
   existing debt facilities. There is scope to more than double the size of the 
   business.

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