FY’19 results and COVID-19 update

Filta Group (Filta) announced FY’19 results pretty much in line with our numbers. Adjusted EBITDA was £3.2m, vs. our £3.3m estimate, and revenue was £24.9m, vs. our £25.1m expectation. These figures confirmed that the integration of Watbio was back on track and the business was trading well until COVID-19 struck. Most of Filta’s customers are currently closed, but the company is optimistic that they will bounce back one distancing restrictions are lifted. We have removed our 2020 forecasts.

• FY’19 results: Revenue was up 75%, at £25m, of which £8.6m came from Watbio. Costs, however, were up 91%, leaving reported EBIT down a third, at £1.2m, and statutory PBT nearly halved, to £0.9m. The company ended the year with net borrowings of £2.1m, having paid the deferred acquisition and integration costs of Watbio, and including future lease liabilities.
• 1Q’20 trading and outlook: 2020 had started well in all territories, with six new franchisees added. Margin improvements were coming through. A significant part of the company’s activities is focused on the hard-hit leisure sector and, until it reopens, the company is mostly marking time. It has developed a bacterial cleansing service, which it is offering to existing and new clients.
• Valuation: Along with our forecasts, we have suspended our valuation.
• Risks: The clear risk for Filta is that it loses a substantial part of its business if customers are unable to reopen. In the UK-owned operations, the business is heavily weighted towards 20 large operations that are well positioned to survive, including some supermarket chains that have remained open.
• Investment summary: Filta is an attractive business, in our view, combining the capital-light franchise model in North America and Europe with company-owned operations in the UK. As businesses begin to reopen, the focus on cleanliness, efficiency and environmental friendliness is unlikely to be abated.