Flanigan’s (BDL)

florida

Key Statistics

Enterprise Value = $51.94 million

Operating Income = $6.51 million

EV/Operating Income = 7.97x

Price/Revenue = .40x

Earnings Yield = 8.4%

Debt/Equity = 44%

The Company

Flanigan’s is a Florida-based business operating 26 liquor stores and restaurants. The company was founded in 1959 by Joseph “Big Daddy” Flanigan and the company’s namesake. The CEO and the largest stockholder is Joseph Flanigan’s son, James Flanigan. The company is operated and owned by the family. Insiders presently own 62% of the company’s stock. James Flanagan owns 374,320 shares of the 1.8 million shares outstanding.

Flanigan’s currently operates 26 liquor stores and restaurants. The restaurants are all based in South Florida with a relaxed, saltwater vibe to them. The liquor store chain is called “Big Daddy’s Liquor’s” and the restaurants are all referred to as “Flanigan’s”.  3 locations are liquor store/restaurant combinations, 6 locations are liquor stores only, and the remainder is restaurants.

The restaurants all have great reviews on Yelp, with the occasional bad review over some one-off poor service, something you’ll find for any restaurant. Most of the reviews are overwhelmingly positive. Check out these reviews for the Coconut Grove location.

The financials are excellent, growing, and healthy. Here are the earnings and growth trajectory for the last ten years:

salesgrowth

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Operating metrics are also respectable and consistent. Gross margins last year were 26.34%, and that is a standard arena for this company. They have some debt, but it is small and manageable. I am also encouraged by the fact that the company maintained positive earnings throughout the 2009-2012 period.

My Take

I found this stock while looking through companies at a sub-$50 million valuation with a high level of insider ownership. As I dug into the company, I was compelled by what I found. This was a well managed, growing, family-owned enterprise where insiders have strong incentives to keep the company moving in the right direction.

I don’t usually focus on book value, but the stock trades close to its book value, which is currently $18.93/share. On Friday, it closed at $24.34. Cash & equivalents represent 32% of the current market cap. By the traditional value metrics that I look at, the stock is compellingly cheap for such a well-managed, growing, enterprise. It trades at 40% of revenue, 5.5x cash flow,  with a 7.9x enterprise multiple, and trades at 11.9x earnings per share.

Institutional investors only own 16% of the stock. Because of the nano-cap valuation, this isn’t big enough to even be a part of the Russell 2000 index, and it is entirely overlooked by big investors. That’s why such a great company is selling for compelling multiples. Substantial insider ownership also reduces the float. Bottom line: this is an excellent company at a decent valuation that is overlooked by the market.

There is also a lot of room for this company to expand, even if they continue to maintain their Florida footprint. Florida is a big state with a growing population. It is currently the 4th fastest growing state in the country. If Flanigan’s maintained its current footprint of stores, they would continue to grow sales and earnings organically. However, I think there is a lot of room for growth. There are currently several franchise locations, and it looks like the company plans to continue to grow this footprint.  With such a small footprint, there is a tremendous runway for the company to expand.

As I’ve stated before, now that the yield curve is inverted and the Fed continues to quantitatively tighten the balance sheet even though they’re standing pat on rates, I think it’s probable that we’re going to have a recession soon. As with all things, I don’t know this for sure, but I think a recession is probable. This is why I currently have a large cash balance that is 30% of my portfolio and I’ve been more trigger-happy to sell if the stock hits a decent multiple or a 52-week high.

With that said, Flanigan’s will be harmed by a recession, but I think there is downside protection based on their cash position, liquid balance sheet, and the company’s performance during the last recession. I doubt that people will stop drinking alcohol and eating reasonably priced food at Flanigan’s locations during the next downturn. It’s also possible that people will spend more time at the liquor store when the inevitable recession hits!

PLEASE NOTE: The information provided on this site is not financial advice and it is for informational and discussion purposes only. Do your own homework. Full disclosure: my current holdings.  Read the full disclaimer.