Fulham Shore (FUL.L)

Fulham Shore
MV: £109m
EV: £120m

I’ve purchased stock at 18.50p and below.


Fulham Shore is an investment vehicle established by David Page and managed by Nabil Mankarious. Together, they have been involved in many hugely successful restaurant concepts in the UK. They currently operate two restaurant concepts: Franco Manca and The Real Greek both of which are being rolled out.

David was the owner and managing director of the largest PizzaExpress franchise organisation between 1973-1993 with 14 sites. PizzaExpress floated in 1993 and David became the CEO. Subsequently, he and an investor group bought Pizza Express outright in 1996 and grew the number of outlets from 25 to 300. It was bought by private equity in 2002 after their investment did 23x. In 2005, David bought a small chain of burger shops called Gourmet Burger Kitchen and added 53 sites before selling the concept in 2010. Now Fulham Shore is the next vehicle of expansion.

Franco Manca

If you are a regular to London, you probably know Franco Manca. It is a Neapolitan sourdough pizza specialist. It originated in Brixton Market in 2008 with a cult following.

By 2013 it had a handful of sites and has really refined the roll-out since and grown to 40+ sites now. The business model is simple. Successful pizza restaurants have good economics because:

  1. Pizzas are quick to cook
  2. Skill required in the kitchen is lower than average restaurant
  3. Facility and space of kitchen takes up less and gives more space to the front of house
  4. Product has broad appeal from children to couples to professionals

Franco Manca has differentiated themselves through the use of higher value ingredients and its distinctive sourdough pizzas. The pricing also sets Franco Manca apart. Despite it being regarded as a high quality premium pizza, their most expensive pizza is cheaper than PizzaExpress’ (the largest incumbent) cheapest pizza. The average spend for a pizza and a drink is £9-9.50.

It keeps the menu short at 6 pizzas and 1 special which changes 3x per year. The restaurants are smaller and buzzier with no music as they prefer the sound of people talking. They dont spend too much on the interiors but make them hard wearing e.g. lots of tiles so they have to spend less money on maintenance going forward. But the restaurants still look urban chick with exposed piping / brick work etc (depending on location obviously). The philosophy is its better to have busy place with 50 seats than an empty cavern with 150.

The goal is to have 30% return on capital. Spend about £750,000 on a restaurant and make £250,000 in EBITDA. PizzaExpress had 33% during their very successful growth phase.

So far this has played out exactly as planned. Franco Manca had 32 sites as at March 2017, 40 currently and will end the year (March 2018) with 45 sites. The goal is to add 13 sites per year however I believe this will be increased once the concept is proven outside London. This year, restaurants have opened in Brighton, Oxford, Bournemouth with more to come in Birmingham, Edinburgh, Leeds and Manchester. There is a little less halo effect when they move out of London but so far the restaurants are performing very well. The UK isnt as disparate as the US where there are more risks from expanding from one region to the other.

The Real Greek

The Real Greek serves a freshly prepared selection of hot and cold food dishes from Eastern Mediterranean regions. All restaurants are licensed and serve a wide variety of Greek wines and beers and on occassion in some branches there is live bouzouki music. It is a relaxed Mediterranean dining experience offering meze sharing plates and selection of other dishes. Again, pricing is quite low, with the average spend per diner around £15. The Company believes that Greek, and particularly Cretan, cuisine has become increasingly synonymous with a healthy diet and that the emphasis on salads, pastes, dips, fish and grilled meat is proving to be a counterweight to the fried and bread or pasta based meals prevalent today.

This concept ended the year March 2017 with 12 restaurants and is adding about 3 sites per year. They’ve already expaned outside London and the last update suggested restaurants outside London are doing even better daily turnover than in London.

New potential ventures

Nothing has been confirmed or officially talked about. David has mentioned in an interview that he has “10 brands in my head”. They are working on a steak concept, a Japanese Ramen idea and a smaller version of the Real Greek. Whether these would be opened within the Fulham Shore umbrella is also not certain. But no other concepts are required for this investment to knock the ball out of the park.


So its pretty simple. They have two businesses performing exceptionally well. The company has 17-18% consolidated EBITDA margins despite investing into a management team that can cope with a larger restaurant base. Despite investments, the consolidated company is delivering around 25-30% ROCE and the roll-out is continuing.

The company is managed by Nabil Mankarious. While a student at university, he worked in the kitchen of PizzaExpress and rose through the ranks to become a Regional Director for PizzaExpress London in 2001. From 2006 to 2011 Nabil was head of Group Purchasing at David’s previous vehicle and head of operations at Gourmet Burger (one of the products at David’s previous vehicle). Rarely do you get a David / Nabil combo with decades of successful track records managing a pretty simple £100m roll-out.

David Page has mentioned in the past that the sweet spot for a restaurant chain in the UK before it loses some of its individual characteristics and before it becomes a larger organisation selling a commodity is around 80 restaurants. That still leaves a doubling for Franco Manca and much more growth for The Real Greek before brand perception becomes a big risk.


In the year ended March 2017, the company generated £7.1m of EBITDA. I expect this to grow to £10.6m in EBITDA in the current financial year generating a profit of £6-7m.

That puts the company on current year multiples of 11.6x EBITDA and 18.7x earnings (note more EBITDA is converted to earnings in the UK due to a 20% tax rate). I believe this is cheap for a company currently growing at 30-40% and likely to grow at above 20% rates for the next 5 years. With a proven operating model. That should be relatively recession protected due to its lower than average pricing. And managed by a blue chip management team.

I also think the current multiples reflect an investment in the team to support rapid growth and that underlying static earnings would be 10-15% higher.

The balance sheet is strong with a £6m net debt position in March 2017. I estimate this growing to £15m by March 2019 before the roll-out becomes largely self-funded.

I put the company at 11x EBITDA in September 2020 for a 100% return and a 26% IRR.

I think there is further upside if liquidity improves and the company is more widely owned. Then a higher rating could be achievable.


  1.  Economic recession

    Eating out is a discretionary expenditure and the UK consumer isn’t in great shape right now. I believe Fulham Shore will be less cyclical than the industry due to its low pricing. A night out with friends at Franco Manca is a cheaper alternative to many leisure pursuits. Nonetheless, I dont expect Fulham Shore to be left unscathed by a downturn.

  2. Franco Manca ex London expansion

    Will the brand be as successful outside London? When Franco Manca opens in London, its instantaneously full due to the brand halo and people excited that Franco Manca is finally opening near them. This may not be the case outside London. Generally there are far fewer examples of concepts failing to expand geographically in the UK than in the US. I am not too concerned about this until I see data showing there is an issue but nonetheless its a risk. We will know more in 6-12 months time. Management have already commented that the Real Greek is doing very well outide London.

  3. Capital allocation / dilution

    It’s possible that Fulham Shore raises capital to add a 3rd restaurant concept. This would dilute our Franco Manca / The Real Greek growth story in the short term and add risk of success for a newer brand. Right now they are growing so fast that I’d be surprised if they wanted to add a third brand in the next 1-2 years.

  4. Competition

    The UK restaurant market is relatively saturated, dynamic and hence competitive. You need to be on the ball and I believe with David and Nabil at the helm, this company will be at the forefront.


Staffline (STAF.L)


UPDATE 21 APR 2017:

I sold the remaining position at £12.25. The headline multiple remains inexpensive but the stock trades above its historical average and I think there are risks I am not well equipped to judge in the government business. The weighted average sale price of the position is £10.70 which represents a gain in excess of 35%.


UPDATE 16 JAN 2017:

I reduced my position significantly today at prices above £10.00 per share. With dividends this is a +27% gain on purchase over 3 months. The headline multiple remains cheap at below 9x projected 2017 earnings. It suggests +14% upside to Staffline’s average trading multiple since 2008 while the market trades above its average.

Why did I reduce? 60% of Staffline’s business is public sector contracts. This business is split between the Work Programmes as well as various other contracts e.g. Community Rehabilitation (probation services), Carers hub, Independent Living Services. I don’t know what % Work Programmes represent within the business but I believe its a significant part of the 60%.

The work programmes are being replaced by the work and health programmes in March 2017. These are much smaller and funding is being cut by up to 75% in some contracts.

Several current programme contractors have not made it on the shortlist for these new programmes at all (Serco, Maximus, Seetec, Interserve, Learndirect, NCG and Rehab Jobfit). The firms that have made it onto the shortlist are: PeoplePlus (shortlisted in all six contract regions), Shaw Trust (5), G4s (5), Ingeus (3), Reed (3), Working Links (3), Pluss (2), Prospects (1), APM (1), Remploy (1) and Economic Solutions (1).

PeoplePlus is Staffline’s business. They have executed exceptionally well on their current contracts and are the only contractor shortlisted in all regions. I think Staffline is well managed and I hold the CEO in high regard which is why I was willing to take the contract risk at 6-7x earnings. With the outlook uncertain going forward, I have decided to reduce my position significantly. If there is volatility, there may be a buying opportunity and I don’t want to be fully loaded if that happens.


Staffline Group plc

I nibbled on this stock this morning at below £8.00 per share.

Staffline is a recruiting company with excellent management. It is trading on about 7-8x earnings (6-7x forward) and has shown explosive growth organically and through M&A in the past (see parabolic share price chart).

Brexit related uncertainties will be a headwind. However, the business has traded well since the vote according to a management update. I think there are attributes in the business that make it less cyclical than people assume.

40% of their business comes from commercial staffing services. They focus on blue collar temp employees in relatively acyclical industries. For instance, 56% of business is in food manufacturing. 19% in logistics (should benefit from ecommerce growth).

60% of their business comes from public sector contracts e.g. training of unemployed and rehab programs. These may even benefit from increased unemployment as they are success based and therefore depend on flow.

There is a bit of political deadlock so the public sector business has slowed as new tender opportunities have not come onto the market. However, there are big programs in the pipeline which are upside optionalities.

Overall, this seems a good risk/reward at current prices.


Severe economic slowdown
Public sector business has contract renewal risk

Depomed (DEPO)


UPDATE: 6 JAN 2017

I sold the remaining position at close to $20. Weighted average loss of the position was still 19%.


UPDATE: 29 DEC 2016
I significantly reduced at $18.53. This is a c. 20% loss on my entry price, a very disappointing outcome. While initially the thesis went to plan, I made the decision for a couple of reasons.

Since the last update, Depomed’s Q3 results showed disappointing underlying performance  in their lead opoiod drug. This reduces the value during a sale process. More worryingly, the macro picture suggests things could get worse, not better. Concerns about opioid abuse and over-subscription are mounting. A leading player (and potential buyer for Depomed) recently announced an acquisition intended to diversify themselves away from the space and explicitly ruled out interest in Depomed. This is not a vote of confidence. Lastly, while a Trump victory seemed better than a Hillary victory for the pharmaceutical industry, I think the prevalent fraud and outrageous pricing tactics employed in the industry will make fighting the status quo a bipartisan issue. This has led to a de-rating of pharma stocks and therefore a more expensive acquisition currency for potential bidders.

Starboard is a high quality outfit. The management of Depomed is most certainly not. I  still believe that Starboard can get a sale done. However, in light of the above, I feel the potential price is reduced (mid 20s perhaps more likely), the timeline is elongated (mid  to late 2017 if they need to oust management) and the risk is much higher (will a buyer actually emerge?). I was never interested in Depomed for this profile.

This is not usually the type of business I invest in and this is a reminder why. When the thesis evolves, it very quickly gets uncomfortable.


UPDATE: 1 OCT 2016
As expected, the patent litigation was settled favourably. It will give buyers the certainty to bid a fuller price. I expect a sale in the next 1-2 months.


Type of investment: Special situation, take-out expected by year end

I own shares of Depomed at an average cost basis of $23.50

By way of background, the company received a take over approach from Horizon last year valuing Depomed at $33 per share with Horizon willing to bump the offer higher. Depomed did not engage with Horizon and the shares sank to below $15. Starboard took  a large position in the company and went activist. Starboard has proposed to replace the entire board and wants to put the company up for sale. Starboard’s latest letter can be found here:


Management has responded by putting the company up for sale. There is a pending patent litigation for its biggest drug which is expected to settle in the company’s favour by the end of September. Starboard has called for a special meeting of shareholders in mid November. If current management wants to see the sale process through themselves, they will likely work towards a sale by end October / beginning November.

Possible sale price ranges from high 20s to mid 30s depending on the competitiveness of the bidding process.

Envirostar (EVI)


POST MORTEM 24 Feb 2017:
Few times does a 65% gain in a few months feel so painful. Since I sold, the share has returned another +140% in a few months too.

It now seems like a well know stock in the finance community and the growth story is truly well priced in now. I will be looking to get into this name again in the future but only at a ok price. $25 today is far too much in my opinion.


UPDATE 3 NOV 2016:
I sold my position at $10.00 today and the stock closed at $10.40. It represents a 65.3% gain in less than 3 months.

PF for the latest acquisition, I put the stock on 27.5x earnings.

Despite the huge valuation, it was not an easy decision to sell. When a company compounds for many years, it is important not to be too cute with trading around the stock. I feel that in 5 years time investors will look back and think $10 was a great entry price as I think the earnings growth for EVI’s roll-up strategy will offset any potential de-rating and deliver low teens returns for long term holders.

However, no execution risk is priced into the stock at all. We haven’t even seen the result of EVI’s first acquisition. So I thought 27.5x is too rich. Given the illiquidity of the stock and the erratic swings in its price, I hope to re-enter on pull backs. Fingers crossed I will be able to.


UPDATE 4 OCT 2016: 
The share price is +50% in a fortnight and now trades above $9.00 per share. There has been no news. PF for the latest acquisition, the valuation is now full at 24x earnings and 14x EBIT. Even at these levels, I think the stock can compound at mid-teens IRR for many years. However, no execution risk is priced into the stock now so adjust positions accordingly.


Type of investment: 3-5 yr + buy and hold

Share Price: US$6.05
Market Cap: 63.1m
Net debt: 7.3m
EV: 70.4m

Envirostar’s main subsidiary is Steiner-Atlantic Corp.

The business distributes commercial and industrial laundry and dry cleaning equipment and steam and hot waters boilers.

OEM manufacturers rely on distributors like EVI because they help customers with project implementation through designing and planning turn-key systems to meet customer layout, volume and budget needs. EVI also supplies replacement parts and accessories and provides maintenance services to its customers.

Price of products range from $5,000 to $1m. A broad line of products gives customers a one-stop shop for their laundry equipment and repair needs.

The business has been around for a long time (late 1950s) and was run by the founding family until recently. The laundry business is relatively recession proof. Clean clothes and linen are viewed as a necessity with economic conditions having limited effect on the frequency of use and therefore the useful life of laundry equipment. The useful life of stand-alone commercial laundry equipment is generally 7-14 years. As such, EVI consistently produced FCF during 08-09. However there is some cyclicality with their (lower margin) large project orders.

This business was small, with no research coverage, family controlled, very illiquid and traded very cheaply. It paid out special dividends when its net cash balance grew too much.

Then it got interesting when there was a change of control in March 2015. Symmetric Capital LLC, controlled by Henry Nahmad, acquired a majority of Michael Steiner’s and Robert Steiner’s shares ending up with a 40.4% stake.

And the buyer has pedigree. In 1972, Henry Nahmad’s father and uncle acquired what is now Watsco (WSO). WSO is a $4.9bn market cap distributor of HVAC equipment. It consolidated the industry and is now by far the largest company with a larger than 10% market share. WSO has compounded shareholder returns by 19% over more than 25 years.

The same play book is now being deployed in the laundry equipment industry using EVI as a vehicle. You have a CEO and majority owner that can bring, or at least has access to, tremendous operational expertise. He also has huge amounts of disposable capital (the family wealth dwarfs the market cap of the company).

Is this a good industry to roll-up? The industry is made up of over 100 local or regional distributors which are all privately held. There is no dominant company and there is space to become one, much like WSO did. Since it’s a niche market that has no public company roll-ups, no largely capitalised alternative buyers, and many privately held targets, the targeted acquisition multiples are reasonable in the 5-6x EBITDA range. This seems an attractive market in which to do a roll-up.

In the long term, EVI will look at related areas e.g. kitchens but this is not the focus right now. I have not figured out exactly what the M&A runway is but the company is so small that it isn’t an important question yet.

The first deal was announced on 8th September 2016. The target had revenues of $60m vs EVI’s core revenues of $30m. The first acquisition tripled the size of the company. We don’t know the acquisition multiple for sure. If the target has a similar margin profile to EVI, then its right in the 5-6x ball park and will be 40% accretive despite being over 50% equity financed.

I can go into more detail around various aspects. However, I want to just look at the high level investment case for now. This is a microcap company with large cap management and fire power. It operates in an attractive niche with no single leading competitor. It has a good balance sheet. Its strategy has been executed in a similar industry before, by the same operators.

Where does the stock trade? PF for the announced acquisition, I estimate the share trades at 16x earnings, 9.7x EBIT and is 0.8x levered.

Assuming they can do 1 acquisition a year at 2/3rd the size of the recent acquisition, raising equity at LTM EBIT 9.0x to maintain leverage below 1.0x, they can compound at 18% with a dividend pushing the IRR above 20% over 5 years.

I think these assumptions could be conservative. The stock currently trades above 9.0x EBIT i.e. currently they have more acquisition currency. Judging by the last acquisition, they could do bigger acquisitions faster. They could decide to leverage the company to 1.5-2.0x.

Therefore while the stock has de-rated from a high single digit PE multiple for an obscure microcap to a decent market multiple, I think the earnings growth story is sufficiently compelling. Note, Watsco trades 25x PE and as EVI grows I would hope it actually re-rates further assuming a low growth low interest rate environment.

There are no catalysts apart from deal announcements. This is definitely a longer term buy and hold investment.


I need to investigate the market size and potential runway for acquisitions. In my base case, EVI would approach a revenue level of $270m in 5 years. This might not be realistic in its current niche.

  1. The first data point I have is that Alliance Laundry did $470m of revenues in the US in 2014 and is the leading OEM in the stand-alone laundry equipment market. Their principal competition in laundromats comes from Dexter Laundry, Laundrylux (Electrolux), and Whirlpool; in multi-housing the principal competitors is Whirlpool; in on-premise the principal competitors are Pellerin Milnor, Laundrylux and Continental Girbau. Assuming Alliance Laundry has a 30% market share, the US market would be $1.6bn large for the manufacturers which suggests about $2.0bn for the distributors (who themselves have 20-25% gross margins). This is quite small and implies to me that it would be hard for EVI to get $270m in 5 years (and continue growing) since this is a sizeable 13.5% market share. It’s possible but looking at WSO and POOL suggests 10-20% represents an almost unassailable leadership position.
  2. The second data point is that EVI’s core market is Florida and they did $30m of revenues there. They have “a number” (source: IR) of competitors that provide full line distribution. Assuming they have a 20% market share in Florida, assuming that Florida has a population of 20m and extrapolating the same per capita spend to the rest of the US suggests a $2.4bn nationwide market opportunity.

These two data points contain too much finger in the air. But it suggests to me that this is not a $5-10bn market, but is indeed much smaller. Therefore, EVI would eventually need to find adjacencies. This is an area I need to explore further. [MITIGANT: they could do half the acquisition pace I model, issue no equity, lever up to 2.0x and achieve almost similar results]


Any acquisition based strategy requires a healthy dose of skepticism. While the first acquisition has been announced, we haven’t seen the results. We do not know the financial profile of the acquired company and cannot therefore determine what multiple was paid. We also cannot determine the quality of the companies acquired e.g. we do not have any financial data, current or historical, on 65%of the business. This is a trust the management story. [MITIGANT: the seller of the first acquisition took 35% of the transaction in shares and now sits on the board. Henry Nahmad put another $6m into the company via a private placement at the market price. It’s a trust the management story but this management has put serious money to work and wants to create value rather than gaming shareholders through stock comp / bonuses]

Disclosure: I hold a position at the time of writing