RICK - Greystone Capital - RCI Hospitality: No Signs Of Slowing Down
Summary
- RCI Hospitality was our largest positive contributor to performance during the year.
- RICK grew revenues and EBITDA by 37% and 44% during the year, at a time when many restaurant and consumer related businesses struggled.
- RICK still trades at a multiple not representative of its quality or growth potential.
- I think the opportunity set for RICK remains incredibly attractive from here.
The following segment was excerpted from this fund letter.
RCI Hospitality ( RICK )
As our largest positive contributor to performance during the year, RICK continues to weather the economic storm by moving over, around and through any barriers put in front of it. On the back of incredibly strong operating results and phenomenal capital allocation, RICK grew revenues and EBITDA by 37% and 44% during the year, at a time when many restaurant and consumer related businesses struggled with elevated costs and reduced demand. Importantly, there seems to be no signs of slowing down as the company makes it no secret that they’re in the market for deals, where they believe there is capacity to deploy hundreds of millions of additional capital during the next few years. As one of the most attractive buyers both in terms of industry knowledge and their ability to offer favorable terms such as seller financing, M&A should be a key part of the strategy moving forward.
If it were up to me, RICK would accelerate their nightclub acquisition strategy as the runway for growth remains very long and the historical cash on cash returns have been outstanding. The company’s last two large acquisitions were homeruns, and during FY22 they deployed $141mm in capital ($45mm of which was cash) to acquire nearly $30mm in EBITDA from 15 clubs in new and existing markets. Luckily, as management is invested alongside of us, they are way ahead of me in their goal to deploy another $200mm or so in M&A firepower within the next 12 months, leading to what they believe should be tremendous growth potential.
As a reminder, during periods of share price weakness, management has been more than willing to repurchase stock to complement their M&A strategy. Nearly 3% of shares outstanding were repurchased during FY22 at prices significantly lower than where the share trade today. Despite the strong returns during the year, RICK still trades at a multiple not representative of its quality or growth potential and in line with slower growing, lesser quality restaurant businesses. I think the opportunity set for RICK remains incredibly attractive from here and look forward to seeing what the business can accomplish during 2023.
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Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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Greystone Capital - RCI Hospitality: No Signs Of Slowing Down