A capital-light cash engine of mostly franchised restaurant concepts has the potential to expand new paths of international growth while building on its existing North American (formerly Canadian-only) base.
Why We Like It:
- Its diversified footprint and financial stability allowed it to survive and even thrive through the teeth of the pandemic.
- The market has not fully realized how well MTY performed.
- A resumption of its growth-by-acquisition strategy will help continue the journey we began seven years ago.
MTY is one of our longest-standing recommendations in Stock Advisor Canada, and it’s a company that touches many of our lives on a regular basis. We just might not know it.
MTY is largely a franchisor of quick-service restaurant banners. The likes of Baton Rouge, Mucho Burrito, Mmmuffins, and Thai Express all fall under MTY’s empire. These though are just a fraction as eighty brands in all butter our bread, so to speak. These eighty brands are run independently, but combined, they comprise a retail network of 6,606 locations, at last report, that span North America.
Revenues from franchise locations largely consist of royalty and franchise fees, which translates to an incredibly capital-light business model. In turn, we’re dealing with a business akin to a cheque-cashing machine. Money comes in and there are only a few places for that money to go – all of which are in service to long-term shareholders. Growth by acquisition is the name of MTY’s game and historically this has been the primary avenue for deploying the gusher of capital that comes through the door. But a modest dividend and share buyback activity has crept into the mix.
Given the pandemic in the rearview mirror, we’re also looking at a business that’s been stress tested to the extreme in recent years and came through with flying colours. From here, we see much more of what we’ve come to love about this company during our nine years of getting to know each other. If the next decade is as productive as the past decade has been, MTY will have more than proven itself worthy of a spot in investors’ portfolios.
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