Upbeat outlook

Filta Group (Filta) announced that it had remained EBITDA-positive in 2020, despite most of its customers closing for part of the period and revenue falling by a third. Net debt fell to £0.5m. The US reopening is accelerating, while the UK is due to follow in April. Filta has used the period to reduce costs and improve its business model. We expect it to emerge as an even better business as COVID-19 is tamed. Our forecasts are reinstated: we see 2021 EBITDA similar to 2018, and we estimate a record £4.5m for 2022.

• Trading update: Revenue was down by a third, and adjusted EBITDA came in at around £1m. The company ended the year with net debt of just £0.5m, showing the effectiveness of its cash management in a very tricky period. Overheads were reduced by £1.4m, and efficiency gains were made throughout the business.
• 2021 outlook: The US has been better than the UK, which has been better than Europe (only 3% of business). We are forecasting a 22% pickup in revenue for 2021, followed by 30% in 2022. We estimate a 44% gross margin in both years, and expect the overhead proportion to drop sharply as sales pick up. There were six franchise sales in the US in 2020, and there remains strong interest.
• Valuation: Our DCF-derived valuation delivers a central value of £45m, or 156p per share, and equates to a 10x 2022E EBITDA multiple.
• Risks: The clear risk for Filta is that COVID-19 returns aggressively and its customers are unable to stay open or reopen. In the UK-owned operations, the business is heavily weighted towards 20 large operations that are well positioned to survive. Its balance sheet is relatively strong, with cash balances and low net debt.
• 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 continue to reopen, the focus on cleanliness, efficiency and environmental friendliness is unlikely to be abated. This is a business that has not sat idly by while its customers were shut; it has improved efficiency across the operations that will drive profitability this year and next.