MTY Food Group= Frugal CEO with high ownership + Growing free cash flow + Minimal dilution 2  


All Hail To The King

 

The food court king of Canada… If you follow my blog… You know who I am talking about… 

Yes… I am talking about this Sexy Food Court King…

 

The Food Court King of Canada… and soon to be United States…. Europe…. Asian and the freaking WORLD. 

 

Stanley Ma…

 

There are only handful of sexy men that I can think of in Canada and Stanley Ma holds one of the top stops.  Obviously the top spot is this random Korean dude who is writing this…

 

This Hong Kong immigrant is the king of the food court in Canada… No matter where you go, shopping malls, PATH in Toronto, strip mall or just even downtown street of any cities in Canada or even United States, you will find a fast-food restaurant that is owned by MTY Food Group.

 

 

The Brands the King owns

MTY Food Group owns franchise rights of the following restaurants and milks every single juices out of them.

 

Tiki-Ming,  Sukiyaki, La Crémière, Au Vieux Duluth Express,  Carrefour Oriental, Panini Pizza Pasta, Franx Supreme, Croissant Plus, Villa Madina, Cultures, Thaï Express, Vanellis, Kim Chi, “TCBY”, Sushi Shop, Koya Japan, Vie &Nam, Tandori, O’Burger, Tutti Frutti, Taco Time, Country Style, Buns Master, Valentine, Jugo Juice, Mr.Sub, Koryo Korean Barbeque, Mr. Souvlaki, Sushi Go, Mucho Burrito, Extreme Pita, PurBlendz, ThaïZone, Madisons New York Grill & Bar, Café Dépôt, Muffin Plus, Sushi-Man, Fabrika, Van Houtte, Manchu Wok, Wasabi Grill & Noodle and SenseAsian, Tosto, Big Smoke Burger, Cold Stone Creamery, Blimpie, Surf City Squeeze, The Great Steak & Potato Company, NrGize Lifestyle Café, Samurai Sam’s Teriyaki Grill, Frullati Café & Bakery, Rollerz, Johnnie`s New York Pizzeria, Ranch One, America’s Taco Shop, Cereality, Tasti D-Lite, Planet Smoothie, Maui Wowi, Pinkberry, Baja Fresh Mexican Grill, La Salsa Fresh Mexican Grill, La Diperie, Steak Frites St-Paul and Giorgio Ristorante.

It is hard to count all of them…

 

There are more… and eventually I would not be able to keep up…

 

I work in downtown Toronto and whoever work in downtown eats at PATH (underground food courts) every day and let me tell you… Every single day, if I come down with my co-workers, there is no seat.. we always have to wait to find seats for us. Tones of lineup at all time on all the fast food restaurants…

 

MTY Food Group has 5,494 locations and 5,428 were franchised as of May 31, 2017… Can you imagine how big this will get in 10 years as those 5,500 restaurants all pay franchisee fees every single month to MTY Food Group and the King takes the money to buy more established brands at his own pace?

 

On top of juicy franchisee fees… the king is very frugal… Let me compare MTY Food Group with another company that is on my watch list called High Liner Food, a frozen seafood processor.

 

High Liner Food’s current market cap is about $470M but that used to be around $1B … the same as MTY Food Group’s market cap.

High Liner Food used to make $60M of free cash flow (now it is around $30M) which is not too bad compared to MTY Food Group’s $70M.

 

However let’s see the top dogs of High Liner Food’s compensations here…

 

 

A whooping $1.8M per year.. and look at all other guys. At least $500K per year… Do they deserve that much money when the company’s free cash flow dropped by $30M and its market cap dropped from $1B to $460M during last 4 quarters?

 

They also seem extremely busy with taking free shares, options and non-equity bonus, pension………….

 

The moment I see that, I just stop thinking about owning it because I can simply compare that with 

the King and his top lieutenants compensations here…

 

 

Isn’t it admirable?

 

In 2016… he was only paid $400,000…. Holy cow.. The top guy who runs $1B company that makes $70M of free cash flow takes only $400K… No free share and options issued to him and his car allowance was only $23K per year…. What the hell…  That sets the bar really low and therefore his all other executives make less than $300K per year…

You know why??? Because he owns 23% of MTY Food Group… MTY Food Group is Him 

Do you remember a post that I wrote a while ago about how insider ownership correlates with stock performance?

 

 

What kinds of frugality are we talking about here???

TSX-venture listed companies CEOs (Many of them are thieves by the way) take more money than the King’s team…

 

 

 

What about fundamentals?

Its free cash flow grew 6 times over last 10 years… from $12M to $71M.

Revenue grew 9 times from $31M to $270M while number of shares were only increased by 2M from 19M to 21M. That was only issued because it acquired Kahala brands in 2016…

 

10 years stock performance is 400% excluding dividends… A great performance compared TSX’s mere less than 15% performance excluding dividends

 

 

Once I know these facts… I just can’t buy other companies that easily… MTY Food Group will stay with me as long as the King kicks ass…

I am worried about his age (71) but Warren Buffett is 87 and still kicking so I just hope the Stanley Ma lives another 15 -30 years and stay at the helm for a long time!

 

I do not even have to convince you hard… MTY Food Group would be a company that Warren Buffett would talk about…

 

For me MTY Food Group is like Warren’s See’s Candy store…

 

Or Nebraska Furniture Mart…

 

 

I think MTY Food Group deserves a spot in anyone’s portfolio. Also if you are lucky enough to run into companies that have similar tenets like MTY Food Group, then you better buy and keep for a long term (as long as valuation is reasonable) because they will reward you for a long time.

I love you Stanley Ma. You darn sexy man…

 

 

Oh right. their Q3 will be out really soon so you may want to wait for that to see whether the company is doing alright.

As always, do your own research before buy any stocks 🙂 

 

 

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2 thoughts on “MTY Food Group= Frugal CEO with high ownership + Growing free cash flow + Minimal dilution

  • Adam

    I’ve read that same store sales have been down over the last few quarters, any thoughts around that? Also with the retail sector struggling and more people shopping online than going to stores I believe food courts will be negatively impacted. What are your thoughts? Thanks!

    • monsterid
      Be Smart Rich Post author

      Great questions.
      Yeah, declining same-store sales is certainly a negative factor but I have been always thinking that MTY’s business model is different from other restaurants operators. MTY takes the cash flows and put into work buying other brands that already have positive cash flows so declining same-store sales is often offset by addition of and growing cash flows.

      On top of that, most recent MD&A shows that
      For the first six months of 2017, system sales totalled $1,122.7 million. The net impact of stores opened in the past 18 months contributed $40.5 million while the net impact of stores closed during the same period caused a reduction of $22.2 million. The negative same-store sales growth caused a net decreases of $9.4 million so my math works like this
      $40.5M -$22.2M – $9.4M = Positive $8.9M.

      I know that everyone worries about this which is a very valid factor but I am not too worried as long as MTY manages it positively.

      Struggling retail sectors is one of my concerns but I think the decline will slow down and will eventually balance out. People including families gotta go out and have fun and malls are one of their major entertainments.