BBQ Holdings, Inc. (NASDAQ: BBQ), soon to renamed “Famous Hospitality,” is a national restaurant company engaged in franchising, ownership, and operation of casual and fast dining restaurants – BBQ is run rating ~$715M in system wide sales yet has an enterprise value of ~$145M (post Barrio Queen acquisition payment).
BBQ guided its 12 month run rate cash EBITDA to $27.5M on the high end. CEO Jeff Crivello has a record of significantly under-promising and overdelivering. We believe BBQ should easily generate its guided $27.5M in RR EBITDA over the NTM. Since taking over as CEO in November of 2017, Crivello has quietly taken EBITDA from $4M in 2017 to the current run rate of $27.5M+! We look forward to Crivello continuing to compound the earnings power of the business over the next 5 years – in similar fashion to his success over the previous 5 years.
BBQ’s business is currently 68% franchised. BBQ will likely generate $18.5M+ in royalty and license revenue. We believe the royalty segment is a high quality, high margin, recurring revenue business that alone is worth 10x Revenue, or ~$18 per share. BBQ’s royalty business should grow mid to high single digits annually, with essentially no further capital employed. Licensor peers such as A&W Revenue Royalties Income Fund (OTC:AWRRF) and Authentic Brands Group have recently traded at 17-18x revenue and >20x revenue, respectively. BBQ has a runway for royalty growth with their small box/counter serve prototypes (similar to Chipotle), which have strong unit economics at ~$1.5M to build with the potential of a 2-3 year payback.
BBQ’s owned and operated restaurants are generating ~$14M in EBITDA. We believe the remaining restaurant operation business is worth 7x EBITDA, or ~$10 per share.
With at least $18/share in value at the franchise business and $10/share for its owned and operated business, BBQ is worth $28/share. BBQ has a net cash balance sheet.
Not only does BBQ have ~$100% upside to fair value on conservative multiples – this gives very little credit to BBQ’s successful strategy of using its very strong balance sheet and cash flow to acquire and invest in restaurants that generate high returns.
The investment playbook includes investments in high quality restaurant concepts in favorable markets (and have strong unit growth runways) such as Barrio Queen, growing BBQ’s proprietary concepts: Clark Crew, Real Urban BBQ and Quick ‘Que. Additionally, BBQ is opportunistically executing M&A at low multiples, targeting assets that are immediately accretive and generate very high returns on invested capital. For incremental organic growth, BBQ is adding dual concept stores to several of its Village Inn, Granite City, and Tahoe Joe’s locations – this should add material earnings contribution which could step up annual earnings by $5-8M. Lastly, BBQ is growing its high ROIC ghost kitchens business.
BBQ has proven they are adept at capital allocation and growing earnings. BBQ’s recent M&A activity includes Granite City (03/2020), Real Urban (03/2020), Village Inn & Bakers Square (07/2021), Tahoe Joe’s (10/2021), and bar concepts (03/2021). Additionally, Chuck Davidson of Wexford Capital is a board member and large ~15% shareholder. Davidson is a billionaire and former right-hand man of Michael Steinhardt and has had tremendous success in capital allocation throughout his career. BBQ’s leadership is both well incentivized and highly capable of growing BBQ’s intrinsic value from ~$30, to $40, and eventually $50+, we believe the shares are a buy.
Risks include an economic downturn or mismanagement.