Fulham Shore (FUL) – Let’s take a detailed look at its tasty prospects

Fulham Shore (FUL) – Let’s take a detailed look at its tasty prospects

Do you like pizza? If the answer is yes then you may be interested in Fulham Shore, the owner of Franco Manca. CEO David Page used to run Pizza Express back in the day. What this man doesn’t know about pizza restaurants in the UK isn’t worth knowing.

First let me sell you on the prospect of a pizza at Franco Manca. The restaurant offers sourdough pizzas, which are seen as higher quality. Sourdough is slow rising and is made every day on site.

CEO Page believes that Franco Manca’s pizza is higher quality and more affordable than Pizza Express’ offering. This is a formula that should win the hearts and minds, or stomachs and wallets, of Franco Manca’s customers.

The group had 42 Franco Manca restaurants in the UK as of August 2018 and the majority are in London. A research trip to one of them should be an exception to the rule about mixing business with pleasure.

Tempted to eat here? Looks good to me

Source: Franco Manca website.

Restaurant chains (excluding delivery outlets) are an increasingly difficult sector to make money from. However, if I had to back a UK-listed restaurant group and its management I would probably choose Fulham Shore and David Page.

This is not least because the management of Fulham Shore own around half of the company. This means that they should be good capital allocators and will also feel the pain from any poor investment decisions.

Is Franco Manca any good?

Franco Manca was started by Giuseppe Mascoli in the 1990’s and the brand does feel authentic. Mr Mascoli moved from Naples, the home of pizza, to Brixton and took over a restaurant called Franco’s.

With everyone asking where Franco was, the previous restaurant owner, they called the new restaurant Franco Manca (Franco’s missing). I tried Franco Manca with Graham not so long ago and did like the quality of the pizza.  (Did you like it Graham?  Comment below please.  If you did can we have a staff meal there?)

Sourdough is easier for people to digest and the quality of Franco Manca’s fresh ingredients was very high. In my view, Franco Manca does offer a higher quality product than mainstream pizza chains like Pizza Express.

Franco Manca also has a relatively affordable price point with the cheapest pizza – tomato, garlic & oregano – only £5. This helps pull in the punters and once they are in people tend to trade up or buy other dishes as well.

Tripadvisor reviews of Franco Manca are generally positive with the Tottenham Court Road branch scoring 5 out of 5. Franco Manca also won an award from Yelp in 2016 as the best Italian restaurant in the UK.

Tripadvior review front page for Franco Manca Tottenham Court Rd

Source: Tripadvisor.

Fulham Shore’s CEO David Page at Mello

Fulham Shore CEO David Page presented the company to investors at a Mello event in late September. The ebullient Page was expelled from school and sacked from most of his initial jobs.

The name of the company came from the fact that Page’s house in Fulham has a view of the river shore. Page is a restaurateur through and through having previously the largest franchisee for Pizza Express.

He started out as a Pizza Express dishwasher and eventually became the company’s CEO. Page also founded restaurant group Clapham House whose main brand was Gourmet Burger Kitchen.

On this occasion Page didn’t prove to have the golden touch with gourmet burgers falling out of favour. Clapham House’s share price rose from 113p in 2013 to 400p but the group was eventually taken over at 74p.

Clapham House is a salient reminder that just backing an established restaurateur isn’t sufficient. The underlying restaurant concept needs to be sound given how competitive the restaurant scene is in the UK.

Clapham House: gourmet burgers were hit by the financial crisis

Source: SharePad.

Fulham Shore today: 58 restaurants

Fulham Shore had 58 UK restaurants in August with this made up of 42 Franco Manca outlets and 16 The Real Greek outlets. The group hopes to have 100 restaurants within 5 years and therefore remains optimistic.

With relatively few The Real Greek outlets the assumption might be that this brand is less successful. However, it has apparently been generating stronger like-for-like sales growth than Franco Manca.

Franco Manca currently has 33 restaurants in London and only 9 restaurants are outside the capital. If a restaurant concept can work in a competitive city like London it should work elsewhere, or at least you would hope so.

Franco Manca is primarily a London restaurant group

Source: Franco Manca website.

Fulham Shore also has the potential to take its brands overseas if it can attract suitable franchisees. The company may have the potential for long-term growth if the two restaurant brands can maintain their edge.

Given the uncertainty in the UK the group is planning to fund new restaurants through internal cash flow. The pace of growth in the short to medium-term is therefore set to be modest than in the last three years.

The Real Greek: a little bit of Greece in the rainy UK.

Source: The Real Greek website.

The David Page approach to restaurants

David Page likes to take on relatively small restaurants to help maintain a good atmosphere. One of Pizza Express’ mistakes was to occasionally take on large premises that had no atmosphere from Monday to Wednesday.

Page believes that Franco Manca’s pizza is higher quality and better value than at Pizza Express. He should know. The secret apparently is dealing with suppliers directly in order to lower costs and maintain the quality.

On one occasion this included helping a small producer in Italy to finance his business. While Fulham Shore took a risk it also ended up with a high quality product at a relatively low price.

Sourcing directly from Italy is probably one thing that a small company can do better than a large company. To use an analogy, the fruit and veg in my supermarket is a lot worse than it is in the small fruit and veg market stalls.

Franco Manca’s Twitter account: the staff seem happy

Source: Twitter,

Mr Page is a colourful character and when asked about the potential impact of Brexit he was sanguine. He noted that during the miner’s strike one of the Pizza Express restaurants was busier than ever.

This was because domestic electricity was rationed and as such everyone went out for a meal i.e. very cloud. It is not clear if there will be a silver lining for Fulham Shore if the UK experiences a Brexit related downturn.

Fulham Shore’s trading backdrop

Turning to the financial backdrop and the group has prioritized top line growth in recent years sourdough pizza. Revenue has increased from £30m in 2016 to £40.4m in 2017 and most recently £55m in the financial year to March 2018.

Nine new Franco Manca pizzerias and 3 The Real Greek restaurants were opened in the year to March 2018. The group had opened two additional Franco Manca restaurants as of the end of August and closed an underperforming outlet.

With regard to recent trading the group stated in August that:

“There have been encouraging revenue increases in both Franco Manca and The Real Greek in the first 21 weeks of the financial year. The increased revenue has been generated predominantly from a slightly greater number of transactions in both of our businesses and is driven by menu innovation, the quality of food, the value of our propositions and dedication of our team.”

Fulham Shore since the IPO: investors are increasingly cautious

Source: Fulham Shore.

Bottom line and balance sheet

While top line growth has been impressive at Fulham Shore the bottom line picture has been “messy.” Not dissimilar to a Greek restaurant after a period of plate smashing or an Italian restaurant at the end of an evening.

Fulham Shore reported pre-opening restaurant expenses of £1.2m in fiscal 2018 and £1.9m in fiscal 2017. The group also reported a “one off” impairment charge on property, plant and equipment of £867k in fiscal 2018.

The net result was that the group reported a modest loss after tax for fiscal 2018 of £150,000 versus a profit of £1.2m in 2017. There does, however, appear to be a profitable business buried beneath the sourdough.

With the pace of expansion slowing down we should see a reasonable bottom line result in the current fiscal year. The group has also signalled that with more properties coming onto the market it should be able to strike good deals.

Fulham Shore’s financials: strong revenue growth

Source: Fulham Shore.

Turning to the balance sheet and much of the expansion to date has been debt financed. Net debt at March 2018 came in at £12m versus £6m at March 2017 and £3.2m at March 2016.

This is not always the most prudent strategy in a sector as tough as the restaurant trade. The commitment to use internal cashflow to finance expansion in future should, therefore, reduce the risk profile of the group.

Growth has been largely debt financed

Source: Fulham Shore.

Valuation: enterprise value to revenue

Fulham Shore generated £55m revenue in the last fiscal year and the group’s enterprise value is £72m. The enterprise value to revenue multiple at 1.3X doesn’t appear to be excessive if reasonable margins can be generated.

Cost pressures in the restaurant business are, however, making it hard to generate good margins. Overseas expansion through franchisees would certainly help to bolster the bottom line and generate an attractive return.

The group is currently expected to generate £71m in revenue in the current fiscal year. The enterprise value to forecast revenue ratio is now at the lowest level it has been since Fulham Shore listed on the stock market.

None of this matters, of course, if Fulham Shore doesn’t have the potential to turn into a profitable business. If anyone can make a pizza restaurant work from a financial perspective it should be David Page (as long as he doesn’t get fired….again).

Summary and valuation

Fulham Shore’s two restaurant brands appear to be popular with Joe Public and they both have scope to expand. Fulham Shore could also attract takeover interest at some point if management are willing to sell out.

The restaurant business in the UK is, however, an increasingly challenging place to make money in. Be that as it may, if I had to bet on one company doing well it would probably be Fulham Shore.

The company’s experienced management team own the majority of the company and clearly want to make a go of it. Recent trading at Fulham Shore appears to have been solid and this should translate into reasonable half-year results.

If this kind of investment doesn’t appeal to you then I can recommend a sourdough pizza restaurant – their cheapest pizza is only £5.  It is called Franco Manca (Franco is missing) and apparently is set to expand around the UK.

N.b. My colleague Michael wrote a review of the restaurant sector in which he covers Fulham Shore link.  (You are not a clueless cretin Michael…..despite what your bio says….you clearly know your onions!!!! And your restaurants…).



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  • comment-avatar

    Thanks for this analysis.

    I’ve looked at Fulham Shore a couple of times and have eaten in their Real Greek restaurants. Great food at reasonable prices in good locations

    But so far I’ve not invested

    And it comes down to the numbers. As you’d expect with this type of business it’s fine margin (4.2% forecast), ROCE is low @ 4.5% and debt quite high @ £12m. Currently it’s unprofitable.

    Intuitively it feels like it could be a goer. But given the current state of the casual dining market I’d rather keep my powder dry and invest once the financials improve – albeit I run the risk of missing out

    too rich for my blood

    • comment-avatar

      TerryQ – Just had a bit more of a think about your points. Essentially you are right. It is hard for restaurants to be high ROCE companies. This is because they are capital intensive and don’t have very high margins. The main potential route for a high ROCE is to be delivery focused and/or franchise focused. Fulham Shore might be able to achieve the latter if it can franchise the restaurant concept abroad.

      It is not a sector that it is possible to be extremely profitable in as a restaurant group. Just looking near me and previously there were a few high quality local pizzerias. Then we saw Pizza Express open, also ASK, also Strada then also Jamie’s Italian. This is a huge amount of extra capacity. One of the best quality local pizzerias has closed.

      There is a Franco Manca near me and you can see how the formula works. The restaurant footprint is relatively small and the prices are relatively affordable. This should help keep the atmosphere lively and enable the group to be relatively profitable. But the restaurant is opposite a Pizza Express and near an ASK pizzeria. People can often get great vouchers to use at Pizza Express.

      Personally, I am not a huge fan of the restaurant sector. However, Fulham Shore currently has the most attractive EV/Revenue ratio since listing. The crux is what kind of margin and ROCE can it generate when it reaches maturity. The Franco Manca roll-out is not without risk with a store recently being closed in Brighton Marina.

      The bottom line, though, is that if I had to bet on one listed restaurant group in the UK it would probably be Fulham Shore. Franco Manca seems a more authentic and modern brand than Pizza Express.

      In the article I could of tried to do a profit estimate extracting a lot of costs related to growth. However, I am a bit wary of that approach. I prefer to say the revenue is X the question is what kind of margin do you think this business can generate when it is in a steady state?

      I happened to see Fulham Shore CEO, David Page, present at Mello Autumn and hence the writeup. I was impressed by him and the brands. But like you I also think the sector is very tough and it is not easy to generate a high ROCE.

      I was just reading in The Sunday Times that Gourmet Burger Kitchen is pressing ahead with insolvency. So clearly not everything Mr Page touches turns to gold. GBK was the mainstay brand of Clapham House. If Clapham House hadn’t been taken over I can only assume that Mr Page would still be running it.

      If my view, gourmet burgers may have been a fad. Or at least there are so many of these kinds of outlets that we are spoiled for choice. It is also hard to make gourmet burgers fell like a quality meal. Would you take your girlfriend’s parents to a gourmet burger restaurant?

      This is not a criticism of Mr Page it just illustrates how tough the sector is. I saw an interview with Mr Page in which he said the internet had created tough conditions for restaurants. This was because landlords have turned to restaurants to fill the gaps left by clothes stores etc. The result has been significant restaurant over capacity in the UK.

      I can only talk for where my parents live and where I live personally but this does make sense. At least three former retail outlets near where my parents live have been made into restaurants. All these chains like Zizzi are doing roll-outs. The UK restaurant space in the 1980’s was very different. At that time it was Pizza Hut and so Pizza Express coming along felt like a revelation.

      Probably one way to think about it is as the fallacy of composition. Every restaurant group has roll-out plans and great visions for success. However, with all of them expanding there will be overcapacity. So they see returns decline.

      It is similar to the overcapacity in the UK supermarket sector. There were only a few supermarkets near me when I moved to where I live. I have since seen four or five new small to medium-size supermarkets open. This can’t have helped the sector as a whole. The volume of supermarket shopping is surely relatively unchanged.

      Bottom line lesson – Always best to be in areas/sectors that have barriers to entry in terms of new capacity. If there are no barriers to entry you want to be in the leading player. I.e. Ryanair in the airline sector, Wetherspoons in the pubs sector and Fulham Shore potentially in the restaurant sector.

      The investor Peter Lynch (Fidelity) used to talk about how roll-out concepts are great to invest in. But this is only really the case if you don’t have the potential for new competition and capacity. Roll-out concepts sometimes get focused on growth for the sake of growth and suddenly hit a brick wall when margins decline (i.e. Tesco). The one reassurance I have with Fulham Shore is that management seem very smart and own a lot of the shares. The should hopefully not do anything that destroys shareholder returns.

  • comment-avatar

    Thanks TerryQ. I agree that it is a tough sector, not least given no barriers to entry. The pizza sector is a lot more competitive than it was in the 1980’s and 1990’s. Lots of discounting, vouchers etc. Fulham Shore appear to have a good product and good management but are in a tough sector.

    Two out of three isn’t bad but the sector is the most important factor. Interesting to see how they do when they report interim results in December. I haven’t really followed Fulham Shore closely as I have always thought that it looks expensive in terms of the enterprise value and revenue.

    It is much more attractive now using this valuation ratio. However, trading in a sector like this is relatively fickle and with Brexit just around the corner….

  • comment-avatar

    Reasonable trading update from Fulham Shore. Frustrating that they don’t give like-for-like metrics though. Half year results will be announced 12 December:


    “Fulham Shore has had a successful first six months of the financial year with turnover and customer numbers across both of our restaurant businesses ahead of the same period last year. This performance continues to reflect the quality and value on offer at Franco Manca and The Real Greek”

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