MIDAS ACTION TIPS: Tortilla Mexican Grill Can Spice Up Your Investments

In California, there are Mexican restaurants on almost every street corner. So when Brandon Stephens moved from San Francisco to the UK, he felt something was missing.

It was 2003. Mexican food certainly existed here, but it seemed like nothing quite replicated the healthy cuisine he was used to back home.

An entrepreneur by nature, Stephens decided to fill the void himself. In 2007, he opened the first Tortilla Mexican Grill restaurant, selling burritos – pancake-like wraps wrapped around a variety of tasty fillings.

It’s a wrap: Meals at Tortilla, where customers can create their own burritos, are a healthy step up from fast food.

Today there are more than 50 tortilla restaurants dotted across Britain and nine more in the Middle East. The company was listed on AIM in October last year at £1.81 per share, but the price has since dropped to £1.63.

The drop seems unfair. Tortilla is a fast-growing and popular chain that has proven its resilience over the past two years and is expected to double in size over the next five years.

The Tortilla offering is simple – a step up from fast food but cheaper and less formal than most restaurants. Meals usually cost between £8 and £9, and customers can create their own burrito, choosing toppings ranging from healthy chicken and salad to more indulgent options stuffed with sour cream and cheese.

Around 70% of the food is prepared in a giant central kitchen in North London and shipped daily to the restaurants themselves. The spicy salsas and guacamole are then made in individual sites, according to strict specifications.

The simplicity of the food means that Tortilla doesn’t need to hire chefs, but rather train young workers to marinate and assemble the ingredients.

The group has therefore managed to avoid much of the staff pressure felt by other restaurants, especially since it pays decent wages and makes a real effort to treat employees well.

With tasty food, low costs and well-trained staff, Tortilla was making steady progress when the Covid-19 pandemic broke out and the UK went into lockdown, with all restaurants in the country closing their doors to guests.

By then, Stephens had left the top job, making way for Richard Morris, a restaurant industry veteran with decades of experience, here and in America. A few weeks into the lockdown, Morris noticed some restaurants had reopened, only serving delivery and takeout. Spotting an opportunity, Morris followed suit.

Sales soared as hungry consumers, eager to take a break from home cooking, ordered burritos, tacos and nachos in droves.

Sales increased, new stores opened, and Tortilla ended up with thousands more customers than in pre-pandemic times.

The company had also diversified into the world of franchising, forging partnerships with SSP, which manages restaurants in airports and train stations; Merlin Entertainments, which operates Chessington World of Adventures; and Eathos, a restaurant chain in the Middle East.

An IPO seemed timely, especially as restaurant and retail closures had left landlords eager to fill vacant sites and ready to strike attractive deals with strong companies. Emma Wood, former boss of Wagamama, later joined the board as chairwoman, adding her experience to that of Morris.

Turnover soared last year and brokers expect further strong growth, suggesting sales will rise nearly 20% to £57m in 2022 and top £78m by 2024. Profits of £3.8m are forecast for this year, rising to nearly £5m in two years.

Growth will likely come from three sources: the existing field, new openings, and more franchise operations. The deal with SSP already has several locations, including a Tortilla at Gatwick Airport. And earlier this year, Morris signed a franchise agreement with restaurant giant Compass, which plans to open Tortilla locations on more than a dozen college campuses.

The group is also better able to withstand inflationary and economic pressures than many peers. Its energy costs are relatively low, it has competitive agreements with its suppliers and can change ingredients if necessary. Meals are reasonably priced so likely to remain affordable even if belts need to be tight.

Midas verdict: The world may seem like an uncertain place right now, but people still need to eat, and Tortilla offers the opportunity to enjoy well-priced Mexican food in a bright, cheerful restaurant or in the comfort of your own home. The stock had a lackluster debut on the stock market, but that does not reflect the group’s current performance or outlook. At £1.63, the stock is a buy.

Traded on: GOAL Teleprinter: MEX Contact: tortillagroup.co.uk or 020 7637 4015

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