Cleaning up in commercial catering

Filta Group (Filta) provides cleaning services to commercial kitchens in North America, the UK and, more recently, mainland Europe. For cleaning and filtering frying machines, this is largely carried out through franchise networks. In the UK, Filta has some company-owned operations too, and it has recently accelerated the expansion of its grease management services with the acquisition of Watbio. There is no direct competition in the fryer market, and it currently addresses only 2% of the total potential. Revenues should prove both consistent and persistent, and there is scope for continuing growth for many years, in our view.

• Strategy: Filta provides a professional service, through franchisees, to kitchens to take over the job typically done by junior employees, if at all. The filtering of cooking oil has many benefits, including improving taste and saving money. The grease that inevitably emanates from commercial kitchens, and causes significant problems in main drains and sewer systems, also needs managing.
• Consistent revenues: Once customers are signed up, they are likely to prove sticky, if they receive regular attention, as their fryers need regular management, almost regardless of the level of business. The same is true of their drains. The service provided improves kitchen efficiency and food quality; it also saves Filta’s customers money, and improves the lives of their employees.
• Valuation: Filta has no directly comparable companies. We have used a DCF to derive a value range of 226p to 282p per share, using a 10% discount rate and a mid-term (2021-25) growth rate of between 6% and 12%. Our central estimate is 262p. No account is taken of future added-value acquisitions.
• Risks: In addition to normal commercial risks, Filta is dependent on the behaviour of its franchisees, which it cannot control but can help to influence by means of thorough training. It has also recently made a sizeable acquisition, the integration of which will inevitably involve managing some unknowns. It is exposed to FX risk too, although most costs are local.
• Investment summary: Filta is a very attractive business, in our view, combining the capital-light franchise model in North America and Europe with company-owned operations in the UK. The business is naturally cash-generative and, with only a tiny proportion of the market currently served and with little or no competition, we see potential for many years of profitable growth ahead.