Robust and necessary

Filta Group (Filta) announced FY’20 results in line with expectations. We are not changing the forecasts we published last month. What is clear is that the business has performed robustly during COVID-19, adding new clients and becoming an important part of its clients’ processes. With business levels back to 70% of pre-COVID-19 levels and with its largest clients yet to reopen, Filta is emerging from this fog stronger than ever. Assuming there is no reversion to widescale lockdowns, our forecasts should prove conservative.

• FY’20 results: Revenue was down by a third, and adjusted EBITDA came in at £1.05m. 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. Business is bouncing back strongly, with economic stimulus and huge pent-up demand. Filta has shifted its FOG business in the UK to a capital-light franchise model, and its Cyclone model is now well-established.
• Valuation: Our DCF-derived valuation delivers a central value of £49m, or 169p per share, and equates to 10x 2023E EV/EBITDA.
• 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, focusing on the capital-light franchise model developed in North America, and now widespread in the UK and growing in Europe. As businesses continue to reopen, the focus on cleanliness, efficiency and environmental friendliness is unlikely to be abated. This is a business that did not sit idly by while its customers were shut; it has improved efficiency across the operations, which will drive profitability this year and next. The company is currently hiring 100 staff to cope with the resurgent demand, and, with its FiltaFOG Cyclone product being specified for exclusive use in some of the world’s largest restaurant chains, we believe it is here to thrive for the foreseeable future.