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US Equity Research
Chanticleer Holdings, Inc.
Chanticleer stake in Hooters of America (HOA)
HOTR is the only way to publicly invest in HOA. HOTR controls a
3% ownership in HOA and we estimate Chanticleer’s capital
interest at 1.06% ownership interest. HOA is the Atlanta-based
operator and franchiser of over 430 Hooters restaurants in 28
countries, which generate over $1bn of system-wide revenues
annually. As reported in the press recently, HOA is currently up for sale and we assume a sale multiple of
7.5x – 8.5x EBITDA, implying a sale price of c. $500mn. We currently value HOTR’s stake at $5mn which
alone is more than 36% of its current market cap. We believe that the embedded value of Chanticleer’s
interest in HOA is not reflected in Chanticleer’s share price and provides additional upside for investors.
Chanticleer Holdings, Inc., (NASDAQ: HOTR) Initiation of Coverage
Serving Up A Unique ‘Fast Casual’ Growth Opportunity
Leveraging on experience
Chanticleer seems to have a firm grasp on the fast casual market
which remains one of the hottest in the restaurant industry.
Through acquisitions, the company has created a portfolio of
brands centered on healthy fresh food and ‘better burgers, giving
it diversification across the restaurant sector. Strong acceptance
from international markets should carry the Hooters brand and
also provide an eventual gateway to international franchising of
other concepts and brands.
Buying this story
It is our opinion that investors in the coming years will see
Chanticleer transition into a profitable cash flow generative
franchisee/operator. With its aggressive expansion utilizing both
organic growth and acquisitions, the Company could reach 100 or
more locations in the next 4 years, shareholders should be
handsomely rewarded. Chanticleer’s three main drivers are its
growth as a Hooters™ franchisee, its Just Fresh™ chain, The
Burger Joint™ and its American Roadside Burger concept. Unlike
many of its larger well known peers, the Hooters™ brand is still
experiencing international market expansion and Chanticleer’s
plan to expand the Just Fresh™ and either The Burger Joint™ or
American Roadside™ domestically and internationally offers
investors an exposure to this growth potential.
.
We initiate coverage on Chanticleer Holdings, Inc., (NASDAQ: HOTR) with a price target of $6.00.
Chanticleer is a unique speculative growth investment in the fast casual restaurants sector.
Exchange NASDAQ
Ticker HOTR
Sector/Industry Services/Restaurants
Stock Price $1.89
52 wk. range $1.40 - $5.23
Shares o/s(mn) 7.24
Market Cap(mn) $13.68
Price Target $6.00
Stock Rating Buy
Stock Details (Feb 6, 2015)
Key Metrics (in $mn)
2013A 2014E 2015E
Revenue 8,247 31,347 41,240
EBITDA (3,984) (2,548) 1,031
Net Debt 601 11,908 19,777
Current Ratio
0.3x 0.2x 0.1x
Debt/Equity 0.1x 0.7x 1.6x
Leverage 1.8x 2.2x 3.5x
EPS ($0.72) ($0.67) ($0.87)
Investment Highlights
Q3 results, a reflection of things to come
Restaurant revenue was $9.1mn, an increase of 473.5% y-o-y; Restaurant EBITDA stood at $0.9mn, an
increase of 1040.3% y-o-y. The Company saw positive adjusted EDBITA of $0.5mn in Q3 from a loss of
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US Equity Research
Chanticleer Holdings, Inc.
$0.4mn in the comparable period in 2013. The Company received a cash dividend related to Chanticleer’s
share of its investment in HOA of approx. $0.5mn.
Financial Summary
Income Statement
Balance Sheet
Key Metrics
in USD 000’s 2013A 2014E 2015E 2016E 2017E 2018E 2019E 2020E
Revenue 8,247 31,347 41,240 62,579 94,407 125,439 155,178 183,728
EBITDA (3,984) (2,548) 1,031 4,756 11,518 20,321 26,691 37,848
EBIT (4,606) (4,312) (1,548) 1,310 6,998 14,531 19,517 29,179
Net Income / (Loss) (5,214) (4,831) (6,327) (5,461) (1,126) 5,759 11,568 19,350
in USD 000’s 2013A 2014E 2015E 2016E 2017E 2018E 2019E 2020E
Cash 443 1,000 1,000 1,000 1,000 1,000 10,305 33,328
Current Assets 1,713 2,526 2,619 3,336 4,046 4,749 14,651 38,147
Non-Current Assets 18,374 39,493 42,688 46,126 50,103 53,721 56,634 58,989
Current Liabilities 5,532 13,591 23,915 34,552 31,180 30,444 31,942 36,099
Non-Current Liabilities
3,317 9,367 8,550 7,421 16,499 15,689 14,960 14,960
Total Debt 1,044 12,908 20,777 24,556 24,462 17,411 12,588 11,859
Shareholders’ Equity 11,239 19,062 12,842 7,488 6,469 12,336 24,382 46,077
in USD 000’s 2013A 2014E 2015E 2016E 2017E 2018E 2019E 2020E
EBITDA Margin (48.3%) (8.1%) 2.5% 7.6% 12.2% 16.2% 17.2% 20.6%
EBIT Margin (55.9%) (13.8%) (3.8%) 2.1% 7.4% 11.6% 12.6% 15.9%
Capex Margin 49.3% 16.0% 14.0% 11.0% 9.0% 7.5% 6.5% 6.0%
EPS ($0.72) ($0.67) ($0.87) ($0.75) ($0.16) $0.80 $1.60 $2.67
Net Debt 601 11,908 19,777 23,556 23,462 16,411 2,283 (21,469)
Current Ratio 0.3x 0.2x 0.1x 0.1x 0.1x 0.2x 0.5x 1.1x
P / E (8.8x) (9.5x) (7.2x) (8.4x) (40.7x) 8.0x 4.0x 2.4x
Debt / Equity 0.1x 0.7x 1.6x 3.3x 3.8x 1.4x 0.5x 0.3x
Leverage 1.8x 2.2x 3.5x 6.6x 8.4x 4.7x 2.9x 2.1x
Interest Coverage Ratio
(6.1x) (2.1x) (0.3x) (0.2x) 0.8x 1.9x 3.6x 5.9x
Debt Coverage Ratio (3.0x) n.a (0.3x) 0.2x 0.7x 1.7x 3.1x 5.2x
ROCE (37.5%) (13.5%) (4.6%) 4.1% 22.6% 48.8% 52.8% 50.4%
ROE (42.5%) (15.1%) (18.8%) (17.0%) (3.6%) 19.4% 31.3% 33.4%
Balance Sheet
Key Metrics
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US Equity Research
Chanticleer Holdings, Inc.
Investment Thesis
We view Chanticleer Holdings, Inc (“Company”, “Chanticleer” or HOTR) as a unique
speculative growth investment in the restaurants sector. Chanticleer owns and operates
multiple restaurant brands both domestically and internationally including the iconic
Hooters™, American Roadside Burger™(ARB), The Burger Joint ™ and Just Fresh™.
Beginning with a focus on the Hooters brand, Chanticleer’s management has charted
a compelling growth story for the Company that is focused on bringing the taste of
America abroad. The Company is in a high growth phase and if it continues to have
access to funding, either through debt or equity, then we anticipate the Company to turn
EBITDA positive and generate healthy cash flows in the future.
Unique Portfolio of strong brands
Hooters
At the end of Q3 2014, Chanticleer had 26 locations in operation of which 13 were
Hooters franchises. Chanticleer currently owns, in whole or part, the exclusive franchise
rights to develop and operate Hooters restaurants in South Africa, Hungary, Poland,
Brazil, and the United Kingdom and has joint ventured with the current Hooters
franchisee in Australia, while evaluating several additional international opportunities.
Hooters is a casual beach-themed restaurant, with sports on television, jukebox music,
and the extremely popular Hooters Girls. The menu consists of spicy chicken wings,
seafood, sandwiches and salads. Hooters began in 1983 with its first restaurant in
Clearwater, Florida. Currently, Hooters operates in 28 countries through more than 450
locations, generating close to $1bn revenues.
The Company primarily operates Hooters in areas which house trendy bars, restaurants
and local businesses with up market residential complexes surrounding the shopping
district, creating an attractive mix of both business and residential guests.
HOTR is the only way to publicly invest in HOA. HOTR controls a 3% ownership in
HOA and we estimate Chanticleer’s capital interest at 1.06% ownership interest.
HOTR’s CEO and President, Michael Pruitt, is a member of the HOA Board of
Directors. In 2014, Hooters of America™ completed a refinancing, and the Company
received a cash distribution of $526,106 as a result of its ownership interest in HOA.
We believe Chanticleer could support 76 Hooters locations in its international territories.
Additionally, the Company sees significant opportunity to expand the Hooters brand
domestically through additional store openings in its franchise areas of Oregon and
Washington. The combination of international and domestic growth will provide
diversification with strong revenue and unit growth in the coming years.
American Roadside Burgers
In September 2013 Chanticleer acquired American Roadside Burgers (“ARB”) based in
Charlotte, N.C. At the end of Q3 2014, there were 6 units operational including 1 in
Smithtown, New York, 3 in Charlotte, North Carolina and 2 in South Carolina.
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US Equity Research
Chanticleer Holdings, Inc.
Source: Investor Presentation (HOTR, December, 2014)
Each restaurant features a nostalgic "made in America" theme and focuses on premium
burgers, milk shakes, and beer.
The recent purchase of The Burger Co., a flex casual burger joint, will fit well with the
rebranding of American Roadside Burgers to The American Burger Company (“ABC”).
This acquisition is an integral step in the strategic growth plans to take the better-burger
category into international markets. The unique format of these restaurants promotes
franchising opportunities both domestic and internationally.
We expect the “better burger” units owned by Chanticleer to grow into the double digits
over the next two to three years as it refines its branding and growth strategy.
Additional acquisitions are likely which will accelerate the overall growth.
Just Fresh™
The Just Fresh concept appeals to the growing demands of today's time-pressed
consumers who are looking for quality, freshly prepared meals and meals on-the-go,
and the Company is well poised to benefit from the success of this concept. The Just
Fresh™ menu differs dramatically from the burgers-and-fries establishment. As the
name suggests, Just Fresh focuses more on nutritional offerings such as freshly
squeezed juices, gourmet coffee, fresh-baked goods and premium-quality sandwiches,
salads and soups. As of Q3 2014, the Company operates from 6 locations in Charlotte,
North Carolina and we expect the Company to have 13 units by the end of 2016.
The acquisition of brands centered on healthy fresh food and gourmet burgers has
enabled the Company to diversify across the restaurant sector. The Company intends
to develop these concepts and franchise the brands both domestically and
internationally.
Rapid Expansionary Strategy
Chanticleer's unique opportunity lies in international expansion of the Hooters brand
and the domestic and international growth and expansion of the Just Fresh and Burger
concept. The international market, though relatively untapped, has proven to be
lucrative to other U.S. fast casual establishments. Chanticleer currently has rights to
develop and operate Hooters restaurants in the United Kingdom, Brazil, South Africa,
Australia, and Hungary. With infrastructure already in place in these key international
markets, the Company is uniquely positioned to take other American concepts abroad.
Chanticleer’s exclusive focus on acquiring specific international franchise rights for the
Hooters™ chain represents an interesting strategy. The Company acquired exclusive
rights to Brazil. Capitalizing on the success of its Nottingham location, Chanticleer plans
on opening 2 additional units in the United Kingdom over the next 2 years. Of particular
note is the fact that the Nottingham location is the fourth largest Hooters store outside
the United States and the 15th largest Hooters store overall measured by sales.
Chanticleer management believes there is an opportunity for up to 15 Hooters locations
in the United Kingdom, and we anticipate UK expansion in the near term in London,
Newcastle or possibly Manchester.
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US Equity Research
Chanticleer Holdings, Inc.
As discussed Chanticleer's growth opportunity is not just about the expansion of the
Hooters brand. In September of 2013, the Company announced its acquisition of
American Roadside Burgers (ARB), which currently has 5 locations in New York, North
Carolina and South Carolina. In September, 2014, the Company acquired The Burger
Company™, an award winning casual burger joint based in Charlotte, North Carolina. It
is anticipated that The American Burger Company™ will be the brand that will provide
the foundation for Chanticleer’s expansion and penetration into the fast growing
Gourmet Burger market. The “better burger” category is the fastest growing section of
the $75bn domestic burger market which includes Habit Restaurants, Shake Shack and
Red Robin.
In addition, Chanticleer acquired a 56% majority interest in the Just Fresh restaurant
chain in December 2013. Just fresh is a health-focused, fast casual dining chain. As on
acquisition, Just Fresh has five locations throughout North Carolina. On January 15,
2013, Chanticleer announced it had executed an agreement to acquire Spoon Bar &
Kitchen, a seafood restaurant in Dallas, Texas. However this was disposed in late 2014
so that Chanticleer could retain focus on Just Fresh and its gourmet burger concepts.
Franchising The American Burger and Just Fresh concepts in both domestic and
international markets along with strategic/accretive acquisitions will play a significant
part of the Company's growth.
Acquisitions Bearing Fruits
At the end of Q3 2013, Chanticleer Holdings owned an interest in six restaurants that
generated $1.6mn in quarterly revenue. Since then, the Company has made a dramatic
push to grow the Hooters brand internationally along with other brands in its portfolio.
The Company has undertaken an aggressive pace of acquiring, building, and
expanding both internationally and domestically. Investments made in the last two
years, in both talent and platform, are now starting to bear fruit. Improved operating
performance coupled with new acquisitions helped Chanticleer report a restaurant-level
EBITDA of $0.9mn and an adjusted EBITDA of $0.5mn in Q3 2014.
Chanticleer has made significant progress in building its presence in Australia this year
under the Hooter’s brand. During Q3 2014 Chanticleer acquired 60% ownership of the
Hooters franchisee's management company in Australia, as well as 60% ownership of
two existing Australia Hooters restaurants in Penrith and Parramatta. The company also
opened Australia's fourth Hooters location in Surfers Paradise, an iconic destination
area on Australia's east coast. As a result of these moves, Australia now represents a
significant portion of the Company’s revenue.
The purchase price was the assumption of $5mn in debt. As part of the transaction, the
Company will receive 100% of all gaming revenue until the debt is repaid, and
thereafter the Company will receive 60% of such revenue for the remainder of the
lifetime of the gaming machines. Obtaining gaming licenses is difficult and requires
adherence to strict guidelines.
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Chanticleer Holdings, Inc.
The Company has 25 gaming licenses, of which 15 machines are currently in operation
and generating positive cash flow. Hooters brand continues to gain popularity in
Australia and the Company believes this as the opportune time to increase ownership in
the Hooters franchise in Australia and to continue building on long-term relationship
with Morney Schlebusch, CEO of TMIX and his team.
Opportunities in Fast Casual and Quick Service Concepts
The Company's plans for rapid growth, market penetration, and the trending demand for
healthier alternatives in the "Fast Casual" restaurant segments could provide vast
opportunities.
The fast casual segment, which is a subset of the limited service segment of the
restaurant industry and generally consists of establishments where customers pay at
the counter for food items that generally cost between $3.00 and $12.00 that are later
consumed on-premises, taken-out or delivered. According to Technomic, restaurants
operating within the limited service segment generated $231bn of total sales in 2013.
The limited service segment is comprised of two subsets: traditional quick service and
fast casual. Quick service restaurants include traditional fast food restaurants, generally
with check averages between $3.00 and $8.00, whereas fast casual restaurants more
commonly utilize a limited service format and are differentiated by food prepared to
order, fresh ingredients, innovative menu choices and upscale, highly developed interior
design, generally with check averages between $8.00 and $12.00, making Chanticleers
check average of $7.44 more appealing to its customers when they are choosing
among fast casual restaurants. The sector generated $34.5bn of sales in 2013.
According to Mintel, a market research firm, the combined sales of American fast
casual outlets rose by 10.5% last year, compared with 6.1% for fast-food chains. Fast
casual concepts, Hooters, Just Fresh and The Burger Joint, attract customers from
other restaurant segments, and accordingly, are taking market share from other
segments and generating growth that exceeds the growth of the overall restaurant
industry. Technomic projects the fast casual segment to outpace the growth of the
broader limited service segment and exceed $50bn in sales by 2018. We believe that
the steady growth and expansion of the fast casual segment will continue to capture
market share from many of the largest restaurant segments, including the
approximately $196.5bn quick service segment and the approximately $49.9bn varied
menu full service segment which includes restaurants typically featuring a broad menu
inspired by a variety of cuisines and American fare. We believe the fast casual segment
delivers customers the winning combination of quality, convenience, experience and
value that is not adequately provided by traditional fast food or varied menu full service
restaurants. Accordingly, we believe that Chanticleers position in the fast casual
segment allows the Company to attract customers across multiple segments within the
restaurant industry and gives it a significant and continuing opportunity for growth.
Utilizing its great name, successful fresh food approach and growing market appeal,
Just Fresh plans to expand in this fast growing market segment, reaching out to
thousands of customers in new markets throughout the U.S. and internationally. As
people continue to become more educated about the benefits of healthy eating and
nutrition, we believe the popularity of this restaurant chain will continue to grow.
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US Equity Research
Chanticleer Holdings, Inc.
Industry Overview
Restaurants Industry
Restaurants in the U.S are classified into quick service restaurants (QSR), fast-casual
dining, fast food joints and online food delivery services. The industry is expected to
grow at 3.3% in 2014. Fast Casual Restaurants have grown at a much faster pace
than any other restaurant segment in the industry. This segment can be best
described by concepts that are not such names as McDonald's, KFC and Burger King.
Fast casual brands in the UK would include Byron Burger, Nandos and Gourmet
Burger Kitchen. The fast casual restaurant is a relatively fresh and rapidly growing
concept, which provides counter service and offers more customized freshly prepared
and high quality food than traditional QSRs, all in an upscale and inviting ambiance.
Revenue from fast casual chains increased 11% in 2013 and store count by 8%.
Brands such as Chipotle Mexican Grill, Panera Bread, Qdoba Mexican Grill and Baja
Fresh are considered the top restaurants in this category. Chipotle generated $3.2bn
in revenues in 2013, at a revenue growth of 20% for the last 5 years which
demonstrates the growth potential in this industry segment.
The fast food industry witnessed both sales growth and profitability in 2012 and 2013.
The 3% growth in outlets in 2013 was encouraging, especially given the added
difficulty in both financing and operating additional locations since the recession. The
11% growth for fast casual dining and 3% growth for the fast food industry in 2013 are
signs of growing potential within the food chain categories.
According to Technomics, the company-operated joints are expected to see less
traction in the same store sales & overall sales, and it is estimated that the franchisee
- model joints sales might grow considering the increase in fast food restaurants. In
the last 3-5 years, franchised restaurants generated lower revenues (per restaurant)
compared to company-operated restaurants and this trend is expected to remain over
the next 2-3 years, but these restaurants are expected to enjoy higher margins.
Source: Technomics Research, Forbes, The Economist
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US Equity Research
Chanticleer Holdings, Inc.
Burger Industry
Given the American food tradition and timelessness, hamburgers stand as one of the
few “recession-proof” food industries in the U.S. Even though the affordability of the
burger is variant across brands, high-quality ingredients are still key in producing a
successful burger franchise. 2013 statistics show that nearly 52% of consumers
purchase burgers from fast food restaurants at least once every three weeks, and
approx. 21% eat at a fast casual chain at least once a month.
One of the strongest reasons for the hamburger’s longevity is its wide-spread appeal.
The burger is affordable, portable, and customizable; it can be served gourmet-style or
as a rustic yet classic to-go food. With this type of versatility, hamburger franchises can
easily adapt the hamburger / gourmet style burgers concept to current economic
settings.
In 2013, the burger menu restaurants generated annual sales of approx. $73bn from
49,000 locations, which translates into roughly 1.6 burger restaurants for every 10,000
Americans. The market consists of about 14% independent operators and 86% chain
operators. Burger restaurants account for 7.4% of all U.S. restaurants.
Looking at the total number of burger restaurants by state, California tops the list
followed by Texas, Florida, Ohio and Illinois. The rising demand for fast-food, increase
in fast-casual dining restaurants and improving economic conditions are revitalizing the
fast food industry, and the hamburger franchises are expected to be at the forefront of
this growth.
21.7%
8.1%
6.7%
5.5%
4.1%
53.9%
Market Share by Revenue (2013)
MCDonald's Corp Yum! Brands Inc Doctor's Associates Inc
Wendy's International Inc Burger King Corp Others
Source: Technomics Research, Forbes
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US Equity Research
Chanticleer Holdings, Inc.
Financial Overview
Revenue
Restaurant revenue for Q3 2014 increased to $7.5mn, a growth of 473.5% y-o-y. The
acquisition of 60% ownership of the Hooters franchisee’s management company in
Australia, as well as 60% ownership of two existing Australia Hooters restaurants in
Penrith and Parramatta, and opening of Australia’s fourth Hooters location in Surfers
Paradise added to the Company’s revenue in Q3 2014.
Topline revenue increased from $6.8mn in 2012 to $8.2mn in 2013. The purchase of
ARB in Sep 2013, Nottingham Hooters in Nov 2013, and the opening of fifth South
African Hooters location in Dec 2013 increased restaurant revenues by $1.4mn.
Our model assumed revenue/unit/quarter of $348,759, for a store operating at full
capacity. We factored seasonality into the model to accommodate higher sales in Q4
because of summer in Australia and South Africa.
Hooters Units by Geography
The Company owns and operates stores both internationally and domestically in the
Northwest. It intends to facilitate growth by expanding in new markets.
7 11 14
19 23 25
2 3
7
11
13 15
6
9
11
12
15
18
2
3
5
7
10
1
3
5
5
6
8
3
4
5
6
7
8
2015E 2016E 2017E 2018E 2019E 2020E
South Africa United Kingdom Australia Brazil Hungary Domestic
19
32
45
58
71
84
Source: Company Presentation
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Chanticleer Holdings, Inc.
Units by Brands
We expect the company to expand American Roadside Burgers, Just Fresh and The
Burger Joint both in US and Internationally. These additional units along with gaming
revenues from Australia operations and management fees from both affiliated
companies & non-affiliated companies will contribute to the growth story. We believe
the Company will have 87 units by 2017 and reach 146 units by 2020 (Hooters - 84,
ARB - 38, Just Fresh - 24) generating restaurant revenues of $183mn.
EBITDA Margin
The Company is expected to have a negative EBITDA of ($2.5mn) in 2014 as
restaurant cost of sales, opex and pre-opening expenses hampered operational
performance of the Company. Going forward, we believe that as Chanticleer continues
to grow, it will be in a better bargaining position with suppliers and achieve better
economies of scale resulting in higher margins. We expect the Company to turn
EBITDA positive in Q1 2015 and margins will trend closer towards peers. By 2020, we
expect EBITDA to be $37.9mn and margins to come in at approx. 21%.
19 32
45 58
71 84
8
13
16
19
22
24
15
22
26
32
36
38
2015E 2016E 2017E 2018E 2019E 2020E
Just Fresh ARB
42
67
87
109
129
146
Hooters
Source: Company Presentation
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Chanticleer Holdings, Inc.
EBITDA Margin 2013A 2014E 2015E 2016E
Good Times Restaurant, Inc. 1.3% 1.6% 7.7% 9.7%
Papa Murphy's Holdings, Inc. n.a 27.6% 27.5% 27.2%
Famous Dave's of America, Inc. n.a 11.5% 11.6% n.a
Noodles and Company 13.5% 11.5% 11.8% 12.5%
Red Robin Gourmet Burgers, Inc. 10.3% 10.4% 10.6% 10.9%
BJ's Restaurants, Inc. 10.0% 10.7% 11.3% 12.3%
DineEquity, Inc. 39.9% 41.7% 41.3% 42.8%
Average 15.0% 16.4% 17.4% 19.2%
HOTR (48.3%) (8.1%) 2.5% 7.6%
Liquidity
At Q3 2014, the Company has a current ratio of 0.2x. With current assets of $2.5mn
and current liabilities of $13.5mn, the Company is expected to have a negative
working capital of ($11.0mn) at the end of 2014. Chanticleer has accumulated losses
and has depended on additional capital to finance its growth. In 2013, the Company
used short-term financing for expansion, principally in South Africa, Europe and
Australia. At Q3 2014, the Company had a debt/equity ratio of 0.5x which shows that
the Company is in some financial stress. Whilst this is likely to remain in the near
future, we expect liquidity pressures to ease over the coming months as the
Company’s growth story starts to unfold. We are encouraged by restaurant level
EBITDA turning positive in Q3 2014.
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Chanticleer Holdings, Inc.
Valuation
We compared Chanticleer with restaurant industry peers including Good Times
Restaurant, Inc., Papa Murphy's Holdings, Inc., Famous Dave's of America, Inc., Habit
Restaurants Inc., Noodles and Company, Red Robin Gourmet Burgers, Inc., BJ's
Restaurants, Inc., Dine Equity, Inc. and Alsea.
Trading Comparables
In $mn EV/Revenue EV/EBITDA
Company Name Market
Cap EV 2014E 2015E 2016E 2014E 2015E 2016E
Good Times Restaurant, Inc. 71 64 2.1x 1.5x n.a n.m 18.3x n.a
Papa Murphy's Holdings, Inc. 187 301 3.2x 3.0x 2.7x 11.5x 10.8x 10.0x
Famous Dave's of America, Inc. 189 200 1.3x 1.3x n.a 11.7x 11.4x n.a
Habit Restaurants Inc. 268 278 1.6x 1.3x n.a 15.1x 12.9x n.a
Noodles and Company 738 757 1.9x 1.6x 1.4x 16.3x 13.5x 11.1x
Red Robin Gourmet Burgers, Inc. 1,091 1,228 1.1x 1.0x 0.9x 10.3x 9.0x 8.1x
BJ's Restaurants, Inc. 1,291 1,340 1.6x 1.4x 1.3x 14.9x 12.7x 10.5x
Dine Equity, Inc. 2,016 3,283 5.1x 4.9x 4.9x 12.1x 11.9x 11.4x
Alsea 2,347 2,226 1.5x 1.1x 1.0x 11.9x 8.4x 7.4x
Average 2.1x 1.9x 2.0x 13.0x 12.1x 9.7x
Small Cap Average 1.8x 1.5x 1.4x 14.0x 14.1x 11.1x
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Chanticleer Holdings, Inc.
Valuation Range
We have arrived at a valuation of $6.33 for Chanticleer based on a mean EV/
Revenue multiple of 1.6x (which is mean for small cap peers). In addition, HOTR
controls a 3% ownership in HOA and we estimate Chanticleer’s capital interest at
1.06% ownership interest. HOA is the Atlanta-based operator and franchiser of over
430 Hooters restaurants in 28 countries, which generate over $1bn of system-wide
revenues annually. A recent re-financing of bonds valued HOA at over $600mn. We
currently value HOTR’s stake at $7.4mn which alone is more than 52% of its current
market cap. We believe that the embedded value of Chanticleer’s interest in HOA is
not reflected in Chanticleer’s share price and provides additional upside for investors.
Small Cap - 2014E Revenue Low Mean High
EV / Revenue 1.3x 1.6x 1.9x
Revenue 31,346,927 31,346,927 31,346,927
EV 42,049,787 50,324,557 58,599,326
Net Debt 11,908,341 11,908,341 11,908,341
Affiliates (1.06% stake in HOA) 5,000,000 5,000,000 5,000,000
Equity Value 35,141,446 43,416,216 51,690,985
Shares Outstanding 7,240,000 7,240,000 7,240,000
Implied Share Price ($) 4.85 6.00 7.14
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Chanticleer Holdings, Inc.
Risks
Going Concern
Marcum LLP, the Company’s independent registered public accounting firm, expressed
doubt in HOTR’s ability to continue as a going concern. Since inception, the Company
has incurred operating losses and generated negative cash flows. To sustain
operations and meet its obligations, the Company has historically raised capital through
equity investments and borrowings. Such financings may not be available or may not be
available on reasonable terms in the future. These conditions raise substantial doubt
about the Company’s ability to continue as a going concern. Our report assumes that
the Company can still raise additional funds through public or private equity offerings,
debt financings, etc.
Acquisition Risk
As part of its growth strategy, the Company acquired a 100% ownership interest in
ARB, 100% of Hooters Nottingham, a 56% ownership interest in entities owning Just
Fresh, a 100% ownership interest in entities owning Spoon Bar & Kitchen and Hooters
restaurants in Washington and Oregon. These acquisitions might fail to realize the
intended benefits, deteriorating the business and financial condition of the Company.
Litigation Risk
Customer complaints concerning food safety, service, and/or other operational factors;
employee lawsuits regarding injury, discrimination, wage and hour, and other
employment issues; business lawsuits regarding non-compliance with franchise,
development, support service, or other agreements; punitive damages resulting from
dram shop statutes could impact the operations of the Company.
Competition
The restaurant industry, constituted by national and regional chains, is highly
competitive in terms of taste, price, quality, service, location and ambiance of each
restaurant. Many of these competitors are well established and thus have greater
operational and financial capabilities. Chanticleer’s three dining concepts competes
primarily with local and regional sports bars and national casual dining and quick casual
establishments and to a lesser extent with quick service restaurants in general.
Franchise Agreements
Non - renewal of existing franchise agreements, non - compliance with Hooters’ high
quality standards and a fall in the brand appeal of Hooters could impact the business of
Chanticleer Holdings. The Company does not have full operational control over the
businesses of Hooters or Just Fresh franchise partners; hence failure on its part to
comply with quality, service and cleanliness standards will hamper operations.
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Chanticleer Holdings, Inc.
Economic Impacts
Economic conditions influence consumer preferences and discretionary spending.
Lower disposable incomes, higher fuel prices & commodity prices, fluctuating exchange
rates have significant ramifications on consumers and companies. These negative
trends along with higher operational costs could have a material adverse effect on the
sales of the Company.
Management Team
Michael Pruitt (Chairman, CEO & President)
Michael Pruitt, a long-time entrepreneur with a proven track record, possesses the
expertise to evaluate potential investments, form key relationships and recognize a
strong management team. Mr. Pruitt founded Avenel Financial Group, a boutique
financial services firm concentrating on emerging technology company investments.
The business succeeded immediately, and in order to grow Avenel Financial Group to
its full potential and better represent the company's ongoing business model, he formed
Avenel Ventures, an innovative technology investment and business development
company.
In the late 1980s, Mr. Pruitt owned Southern Cartridge, Inc., which he eventually sold
to MicroMagnetic, Inc., where he continued working as Executive Vice President and a
Board member until the company was sold to Carolina Ribbon in 1992. From 1992 to
1996, Mr. Pruitt worked in a trucking firm where he was instrumental in increasing
revenues from $6mn to $30mn. Between 1997 and 2000, Mr. Pruitt assisted several
public and private companies in raising capital, recruiting management and preparing
companies to go public or be sold.
He was the CEO and President of RCG Companies, Inc. (later changed to One Travel),
a publicly traded holding company listed on the AMEX. Mr. Pruitt received a Bachelor of
Arts degree from Coastal Carolina University in Conway, South Carolina, where he sits
on the Board of Visitors of the Wall School of Business, the Coastal Education
Foundation Board and the Athletic Committee of the Board of Trustees. He also sits on
the Board of Chanticleer Holdings, Inc.
Paul I. Moskowitz
A Phi Beta Kappa of Vassar College and Cardozo Law School, Paul was a co-founder
and partner of a successful New York law firm specializing in corporate and real estate
law. Paul became affiliated with The World Travel Specialist Group/The Lawyers' Travel
Service ("WTSG/LTS") in 1988. He served as corporate counsel, representing the
growing travel agency network in legal, real estate, and other business activities. In
1989, he joined "WTSG" full time. As President and Chief Operating Officer until March
2003, his primary responsibilities included day-to-day operations which encompassed
"WTSG's" airline relationships.
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Chanticleer Holdings, Inc.
Paul led the growth of WTSG to one of the top 20 U.S. travel management firms with
more than 90 offices throughout the U.S. Paul is currently engaged as a "consultant" for
another travel organization - a former friendly competitor.
Mike Caroll
Owns and operates a sales and training consulting firm based in Richmond, Virginia.
Mr. Carroll has also served as a director for RCG Companies Incorporated since
January of 2004. Mr. Carroll previously spent 22 years in the distribution business, 19
of which were in computer products distribution.
From 1997 to 1999, he was a division president at Corporate Express, a publicly traded
business-to-business office products and service provider. In 1978, Mr. Carroll founded
MicroMagnetic, Inc., a computer supply distribution company that he sold to Corporate
Express in 1997. Mr. Carroll holds a Bachelor's Degree in Business Management from
The College of William & Mary in Williamsburg, Virginia, and a Master's Degree in
Business Administration from Virginia Commonwealth University.
Keith Johnson
A highly accomplished senior executive and corporate officer with extensive experience
in business and technology management, accounting systems, financial controls,
business development and management intelligence. Previously, Mr. Johnson served
as Executive Vice President and Chief Financial Officer of The Telemetry Company in
Dallas, Texas (1997-2004).
He had previously been at Brinks Home Security from 1986-1992 where he was a
member of the start-up team and the original Chief Financial Officer responsible for
creating the business model and servicing operations infrastructure. From 1992-1995,
Mr. Johnson was the Chief Financial Officer of BAX Global in London, England. BAX
was an ex-patriot assignment in which Mr. Johnson was responsible for Europe, Africa
and Middle East business development, financial planning and accounting functions
with a global staff of 75 professionals.
Russell Page
A thirty-five year investor relations executive and currently the founder and principal of
Rusty Page & Company, a unique equity marketing/investor relations consulting firm
engaging with small, mid-cap, and large cap companies. Mr. Page formerly sat on the
Board of Directors of The Diamond Hill Financial Trends Fund. Previously, Mr. Page
served as Senior Managing Director of The NASDAQ Stock Market. He also served for
17 years as Senior Vice President and Equity Marketing Executive for NationsBank
Corporation, the predecessor of Bank of America, where Mr. Page was responsible for
investor relations and all equity related capital markets functions for that $1tn plus asset
financial services company. During that time, NationsBank raised $10bn in equity
capital and became the most widely followed public company in America.
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Chanticleer Holdings, Inc.
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