This restaurant operator reported record results for 2017: 32.6% sales growth and EBITDA increase of 42.7%. The company also declared a special dividend of $0.04 per share, payable on March 12, 2018, to shareholders of record on February 27, 2018.
Meritage Hospitality Group Inc. (MHGU)
From Internet Wealth Builder
Meritage Hospitality Group (MHGU) is one of the nation’s premier restaurant operators, with 297 restaurants (290 Wendy’s) in operation located in Arkansas, Florida, Georgia, Michigan, Missouri, Mississippi, North Carolina, South Carolina, Ohio, Oklahoma, Tennessee, and Virginia.
Management’s successful strategy has been to consolidate the existing network of Wendy’s franchises in North America through acquisitions and to improve sales and profitability of acquired restaurants through integration into its IT platform and restaurant remodeling.
On Jan. 31, Meritage announced it has acquired 38 Wendy’s restaurants located in Connecticut and Massachusetts. The company funded the acquisition through a private placement of preferred stock, cash on hand, and debt financing provided by a syndicate of banks led by City National Bank. Meritage expects the 38 restaurants to add approximately $75 million in annual sales and be accretive to earnings going forward.
The company also recently reported that it has agreed to purchase an additional 50 restaurants and is currently proceeding through the customary closing process. The acquisitions are consistent with the company’s five-year growth plan to expand its operating base up to 400 Wendy’s and 20 casual dining restaurants.
Meritage’s shares surged 85% in 2017. Despite this, with the company estimated to have earned $1.35 per share in 2017, its price to earnings or p/e ratio is a relatively reasonable 15.55. The average market multiple for U.S. stocks at present is in the range of 20. Meritage trades at a significant discount to this, yet its growth rate is superior to the average stock on U.S. market. We call this GARP or growth at a reasonable price.
We estimate the company is positioned to earn $1.69 per share in 2018. If we apply a multiple of 18 to this figure (18 x 2018 EPS of $1.69) fair value could reach $30 over the next one to two years. There is above average risk in the stock, but the management team continues to execute well.
Speculative Buy.
Ryan Irvine in Gordon Pape’s Internet Wealth Builder, www.buildingwealth.ca, 1-888-287-8229, February 12, 2018