Description
Business Summary
Benihana, Inc., founded in 1964, owns and operates 56 restaurants located in the United States. In addition, the company licenses 14 franchises, which are located in North America. Benihana has developed a powerful brand name from its 36 years of operations. Management is shareholder oriented and has demonstrated a good ability to allocate capital.
Over the last 6 years Benihana has grown EBIT, EPS, and Net earnings each by over 27.0% per year, compounded annually. Sales grew by 12.0% per year over the same period and the average same store sales growth was 7.9%. Since 1990, the company has opened between 0 and 2 new restaurants per year. Additionally, Benihana has steadily grown its net margins from 1.3% in 1993 to 6.4% in 2000. The ROE has been over 20.0% for the last 5 years.
Current Status and Future Growth Plans
Benihana is in the process of opening seven new restaurants in fiscal 2002, which represents the company’s most rapid expansion ever. The company plans to continue growing by opening 5-7 new restaurants annually. This expansion is being financed primarily by cash flow from operations as well as a limited amount of debt.
Due to the high cost of building new restaurants in New York City, the company’s EPS were up only 3.3% over the last three quarters. However, operating income before store opening costs and goodwill amortization was up 12.5%. Revenues for the first three quarters of fiscal 2001 were up 19.0% and same store sales were up 11.2%.
Valuation-Based on a $9 Stock Price
Benihana has trailing EPS of $1.34, cash earnings of $1.43, and free cash flow (cash flow from operations minus all capital expenditures) per share of $.92. Thus the stock is trading 6.7x trailing EPS, 6.3x trailing cash earnings, and 9.8x trailing free cash flow.
Catalyst
Given Benihana’s solid management, attractive economic characteristics, strong growth, and low valuation, the stock is a compelling opportunity. The stock is undervalued because of its limited liquidity. Currently, the controlling shareholder is converting 400,000 shares of voting class stock to the Class A shares, then selling. This will increase the number of Class A shares by 15%, thereby increasing the liquidity of the shares and perhaps the stock price.