Strong recovery continues

Filta Group (Filta) announced 1H’21 results in line with expectations. Our forecasts are largely unchanged. What is even more clear is that the business has performed robustly during COVID-19, adding new clients and becoming an important part of its clients’ processes. Revenues were back to 80% of 1H’19, with the US leading the way, and with its largest clients yet to reopen, Filta is emerging from this fog stronger than ever. Assuming that there is no reversion to widescale lockdowns, our forecasts should prove conservative.

• 1H’21 results: Revenue was up 17% YoY, and adjusted EBITDA came in at £1.3m, higher than FY’20 as a whole. The company ended the half year with net debt of just £0.8m including leases, showing very effective cash management. Overheads were reduced, 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 2% of business). We are forecasting a 24% pick-up in revenue for 2021, followed by 27% 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 £52m, or 178p per share, and equates to 11x 2022E 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 compliance, 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 we believe will drive profitability this year and next. The company is currently hiring 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 will thrive for the foreseeable future.