MIDAS SHARE TIPS: Tortilla Mexican Grill can spice up your investments

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

That was in 2003. Mexican food certainly existed over here, but it seemed as if nothing quite replicated the wholesome fare he was used to back home. 

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

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

Today, there are more than 50 Tortilla restaurants dotted across Great Britain and a further nine in the Middle East. The company was floated on AIM in October last year at £1.81 a share but the price has since drifted down to £1.63. 

The decline seems unjust. Tortilla is a fast-growing and popular chain that has proved its resilience over the past couple of years and is likely to double in size over the next five years. 

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

About 70 per cent of the food is prepared in a giant central kitchen in North London and shipped out daily to the restaurants themselves. Spicy salsas and guacamole are then made in individual sites, according to strict specifications. 

The simplicity of the food means that Tortilla does not need to hire chefs, instead training young workers to marinate and put together ingredients. 

The group has therefore managed to avoid much of the staffing pressure felt by other restaurants, particularly as it pays decent wages and makes a genuine effort to treat employees well. 

With tasty food, low costs and well-trained staff, Tortilla was making steady progress when the Covid-19 pandemic erupted and the UK went into lockdown, with every restaurant in the country closing its doors to diners.

By that time Stephens had stepped down from the top job, making way for Richard Morris, a veteran of the restaurant industry, with decades of experience, both here and in America. A few weeks into the lockdown, Morris noticed that some eateries had reopened, serving deliveries and takeaways only. Spotting an opportunity, Morris did likewise. 

Sales soared, as hungry consumers, keen for a break from home cooking, ordered burritos, tacos and nachos in droves. 

Sales grew, new stores were opened and Tortilla found itself with thousands more customers than in pre-pandemic times.

The company had also branched out into the franchise world, setting up partnerships with SSP, which runs eateries in airports and stations; Merlin Entertainments, which runs Chessington World of Adventures; and Eathos, a restaurant chain in the Middle East. 

A flotation seemed timely, particularly as restaurant and retail closures had left landlords eager to fill vacant sites and prepared to do attractive deals with robust businesses. Emma Wood, former boss at Wagamama, then joined the board as chairwoman, adding her experience to Morris’s. 

Turnover soared last year and brokers expect further strong growth, suggesting that sales will be up nearly 20 per cent to £57million for 2022, and will be more than £78million by 2024. Profits of £3.8million are forecast for this year, rising to nearly £5million in two years. 

Growth is likely to come from three sources – the existing estate, new openings and more franchise operations. The deal with SSP already has several sites, including a Tortilla at Gatwick airport. And earlier this year Morris signed a franchise deal with catering giant Compass, which intends to open Tortilla sites on more than a dozen university campuses. 

The group is also better able to weather inflationary and economic pressure than many peers. Its energy costs are relatively low, it has secured competitive arrangements with suppliers, and can tweak ingredients if need be. Meals are reasonably priced so likely to remain affordable even if belts need to be tightened. 

Midas verdict: The world may seem an uncertain place right now, but people still need to eat and Tortilla offers a chance to enjoy well priced Mexican fare in a bright and cheerful restaurant or in the comfort of their own home. The shares have had a lacklustre debut on the stock market, but this does not reflect the group’s current performance or prospects. At £1.63, the stock is a buy.

Traded on: AIM Ticker: MEX Contact: tortillagroup.co.uk or 020 7637 4015 

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