a global food company, garnered additional analyst coverage, from Zacks Small-Cap Research, which initiated on it with a $5 per share target price, reported analyst Tom Kerr in a May 22 research note.
"We believe GRIL stock is substantially undervalued at this time," Kerr wrote.
What It Does
U.S.-based Muscle Maker has two primary lines of business, noted Kerr. One is its international agri-foods segment involved in shipping and trading key food products, such as soybean meal, corn, wheat, and edible oils, through its subsidiary, Sadot, created in November 2022 and run by Aggia.
The other is its restaurants, of which it has more than 50, including Pokémoto Hawaiian Poké and Muscle Maker Grill, and its subscription-based fresh-prep meal service SuperFit Foods.
To better reflect its diverse operations, Muscle Maker is undergoing a renaming and a rebranding.
Attractive Possible Return
Because this U.S.-based food service firm is currently trading at about US$1.11 per share, the upside to the US$5 per share target price represents a material potential gain of 202%, wrote Kerr.
"We believe this to be a conservative valuation target because if net margins in the Sadot business increase at a faster rate than expected, valuations could range between US$5 and US$10 per share," Kerr explained. "The majority of the value within our target price is derived from the Sadot subsidiary."
Pursuit of Growth
Kerr highlighted that the food entity could significantly expand both of its business segments over time.
The primary growth driver, however, is Sadot, a high-revenue business. Management seeks to add other related services, such as logistics and supply chain management, transportation in the form of owning dry bulk ships, and owning or managing farming processing facilities, to increase its net transaction margins, currently at about 2–3%.
"We expect the Sadot subsidiary to generate approximately US$19.8 million ($19.8M) in net income in 2023 (exclusive of stock-based compensation)," wrote Kerr.
As for its restaurant operations, Muscle Maker will concentrate on expanding the Pokémoto franchising program, as it has the most growth potential.
"Pokémoto franchise growth could be substantial over the next three to five years due to low initial franchise costs and an underpenetrated food concept," Kerr commented.
If Muscle Maker can execute its growth strategies, it could grow revenue and earnings at "very robust, double-digit growth rates for the foreseeable future," purported Kerr. "The company's current stock price does not likely reflect that potential level of profitable growth going forward."
Muscle Maker's management team and board members directors, Kerr pointed out, have the resumes to effect such positive change, given their extensive experience with and involvement in high-growth companies, including in the areas of strategic planning, restaurant development, mergers, and acquisitions.
Highlighting a few members of the executive suite, leading the team as the chief executive officer is Michael Roper, who has owned and operated several franchise locations, including Taco Bueno, IMS Barter, and Quiznos.
Chief Financial Officer Jennifer Black is an experienced CFO with a track record of working with public and private equity-backed organizations.
Chief Operating Officer Kenneth Miller spent a large part of his career in the restaurant industry, including as senior vice president of operations for Dickey's BBQ Pit and in various positions at Taco Bueno.
Sadot's management team has significant experience as well, with the global agricultural supply chain.
Currently, Muscle Maker executives and directors own about 3.37% of the company's shares, reported Kerr.
Additionally, it is expected that Aggia and its affiliates will own 19.99% of it at the end of the fiscal year 2023, given the terms of the agreement between Aggia and Sadot.
Solid Q1/23 Financials
Kerr presented key numbers from Muscle Maker's Q1/23. Revenue was US$213M, materially higher than in Q1/22 when it was US$3M.
Of the recent total, Sadot generated US$210.4M, and the restaurant operations generated US$2.6M.
Reflecting a similar trend, adjusted EBITDA for Q1/23 was up year over year, at US$2.4M versus ($1.5M).
At quarter's end, March 31, 2023, Muscle Maker had about US$6.4M in cash and US$947,000 in debt. The following month, the company announced a new share repurchase program, in which it may purchase shares of its common stock with a value of up to US$2M in open market transactions.
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- Muscle Maker Inc. is an affiliate of and has a consulting relationship with Streetwise Reports and has paid a consulting fee between US$8,000 and US$20,000.
- As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Muscle Maker Inc.
- Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor.
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Disclosures for Zacks Small-Cap Research, Muscle Maker Inc., May 22, 2023
The following disclosures relate to relationships between Zacks Small-Cap Research (“Zacks SCR”), a division of Zacks Investment Research (“ZIR”), and the issuers covered by the Zacks SCR Analysts in the Small-Cap Universe.
ANALYST DISCLOSURES I, Tom Kerr, hereby certify that the view expressed in this research report accurately reflect my personal views about the subject securities and issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the recommendations or views expressed in this research report. I believe the information used for the creation of this report has been obtained from sources I considered to be reliable, but I can neither guarantee nor represent the completeness or accuracy of the information herewith. Such information and the opinions expressed are subject to change without notice.
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