Food Concepts Gets Ratings Upgrade Amidst Expansion Plan
Chicken Republic

Food Concepts Gets Ratings Upgrade Amidst Expansion Plan

A leading Quick Service Restaurants (QSR) operator Food Concepts owner of the Chicken Republic, PieExpress gets a rating upgrade ahead of a planned expansion, according to GCR Ratings note. The rating note hints that the Group plans to roll out about 100 additional outlets before year-end 2022.

GCR Ratings announced the company’s national scale long-term and short-term Issuer ratings has been upgraded to A+(NG) and A1(NG) respectively, with the outlook accorded as stable.

According to GCR, the rating upgrade reflects Food Concepts Plc.’s strong competitive position within the Nigerian Quick Service Restaurants industry underpinned by well-established brands and expanding footprints.

Other key rating strengths include the Group’s strong cash flows and shareholder support, which has supported a net ungeared position despite substantial capital expenditure activity, the rating note shows.

Explaining the company’s latest rating, GCR said the Nigerian QSR sector has been resilient since the outbreak of the COVID-19 crisis, maintaining relatively strong earnings growth, reflective of the convenience and affordability of its products.

“This distinguishes the sector from the typical hospitality players such as hotels, bars and tourism centres where patronage plunged”.

The emerging-market rating firm said although the sector is highly fragmented with many players, operating within the informal and formal segments, Food concepts ranks as one of the largest foodservice companies within the sector.

“Its competitive position is supported by its well-established QSR brands, including the Chicken Republic and PieExpress, with over 190 outlets across 19 States and the Federal Capital Territory, Abuja as of end-August 2021”.

Food Concepts plans to roll out about 100 additional outlets before year-end 2022 in view of its expansion drive, details of the latest ratings show. It is also expanding its footprint in the Ghanaian QSR market, which will provide some diversification benefits going forward, albeit the Group still generates almost all its earnings in Nigeria.

Delving into its historical performance, GCR Rating said Food Concepts has reported robust revenue progression, with a 5-year CAGR of 38% underpinned by rapid store expansion and a growing customer base.

It said the company’s revenue has also been enhanced by the Group’s implementation of value-added services, adoption of technology and the introduction of an additional brand (ChopBox Brand) during 1Q 2021.

Strong revenue growth is expected over the outlook period given the increasing transaction count across the outlets, the rising population and improved economic activities, GCR stated in the report.

It said this is evidenced by the strong performance reported as of 8-month management accounts to August 2021, with improved cost efficiency which saw the company’s earnings before interest tax depreciation and amortisation (EBITDA) margin register at 17%, well above 14.8% in the year 2020.

However, GCR projected EBITDA margin to register around 18% for the financial year 2021 and 2022 on the back of higher sales volume and economies of scale.

The rating note stated that currently, Food Concepts has no debt, except for lease liabilities arising from rented contracts for the store, amounting to N1.5 billion and N1.7 billion at FY2020 and 8-month FY2021 respectively.

“Much of the Group’s historical funding was through shareholder loans, which were fully converted to equity during FY2019, thus supporting strong credit protection metrics.

“While the Group does not anticipate the need for debt in the short term to medium term, given its strong earnings and cash flows, GCR expects that debt will likely be used to part-fund the expansion drive, which may necessitate about N5.4bn in capital expenditure spend by FY2022”.

This could adversely impact the Group’s financial profile somewhat should the strong earnings traction not be maintained, GCR Ratings noted in the report.

It also said the Group’s liquidity assessment is somewhat constrained by its high operating and capital expansion requirements, which imply an outlay of over N5bn per annum over the next three years.

Food Concepts liquidity is underpinned by the expectation that cash flow will remain strong, supported by the solid earnings from the additional stores, and close working capital oversight, it added.

While GCR takes a negative view of the lack of committed facilities from any of the financial institutions to meet unforeseen short-term obligations, the rating note said Food Concepts does have the flexibility to shore up liquidity by withholding some capital expenditure spend.

The stable outlook reflects GCR’s view that the company’s recognised QSR brands will continue to underpin solid earnings and cash flow, which is supportive of the Group’s stable financial position through the expansionary capital expenditure phase. #Food Concepts Gets Ratings Upgrade Amidst Expansion Plan

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