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On Friday, RBC Capital initiated coverage on MTY Food Group Inc. (TSX:MTY:CN) (OTC:MTYFF) with a Sector Perform rating and a price target of C$51.00. The research firm’s position reflects a cautious optimism about the company’s valuation relative to its peers in the restaurant industry.
The analyst at RBC Capital noted that MTY Food (F:9MF) Group’s current trading multiple of 7.1x forward twelve months (FTM) EV/EBITDA is attractive when compared to its highly franchised restaurant peers, which typically trade around 13.5x. Despite this, RBC Capital believes that a discount is warranted due to MTY’s history of softer organic growth and a complex business model encompassing 85 different banners. This complexity, according to the firm, obscures the performance visibility at the brand level.
RBC Capital’s price target of C$51.00 is derived from a valuation multiple of 7.25x FTM EV/EBITDA, which is slightly below MTY’s historical average of approximately 8.0x. The lower multiple accounts for the current macroeconomic uncertainties. Additionally, the price target incorporates a discounted cash flow (DCF) valuation.
The analyst further explained that the fair valuation multiple for MTY Food Group takes into account the company’s growth profile when compared to its peers. Until there is a positive shift in organic growth or successful mergers and acquisitions that are accretive to MTY’s value, RBC Capital maintains that the current valuation is reasonable.
MTY Food Group Inc. is known for its diverse portfolio of brands and has historically grown through acquisitions. The company’s performance and stock valuation will continue to be monitored by investors and analysts as it navigates the competitive restaurant industry landscape.
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