MTY considering US expansion says Scotiabank

MTY Group (TSE:MTY) the franchisor behind Thai Express and Sushi Shop restaurants wants to expand in the United States.

MTY sees the US as a key to growth and the company is targeting a base from which it can increase the new restaurant opening rate fivefold from the current 5 to 10 range to a 40 or even 60 per year according to MTY’s CEO Eric Lefebvre who addressed investors in meetings organized by Scotiabank in Toronto and Boston.

While the company has yet to identify its ideal target said Lefebvre it has already established 85 locations for its Extreme Pita Mucho Burrito and Manchu Wok brands and considers Thai Express Sushi Shop and Jugo Juice to be the most promising as the basis for expansion.

The company according to the Scotiabank meetings would be willing to take on a tenfold increase in debt in relation to operating profit from the current 0.3 to three times to obtain the right target according to Scotiabank analyst  George Doumet.

Such a target in the US should be able to produce at least US$300 million in revenue as well as offering synergies to reduce integration costs added Doumet who suggested that Taco John's Lenny's Sub Shop Wow Cafe & Wingery could make the roster of candidates.

Mr. Doumet calculated that buying $ 175 million of a franchisor generating a 20% operating margin would add 23% to the expected earnings per share MTY in 2016.

MTY was trading 1.17% higher this afternoon in Toronto