A private investment management firm known for employing forensic investigative techniques to assess global markets has turned the spotlight onto the foodservice equipment sector by publishing an in-depth report on the Middleby Corporation.
Prescience Point Capital Management claims the impact of coronavirus on Middleby’s business will be much larger than current projections suggest.
Wall Street expects Middleby to experience a ‘V’ shaped recovery and post record profit and margins in fiscal year 2021, but Prescience Point – which published the report on its website earlier this month – said it believed that scenario was “nearly impossible”.
It reckons Middleby’s prospects will be negatively affected by record levels of restaurant closures, over-levered chains cutting unit growth and Capex, and large franchisee groups teetering on the edge of bankruptcy.
And it estimated that foodservice equipment purchases are down as much as 85% in some cases, with many large foodservice equipment distributors gearing up for a wave of used equipment about to hit the market.
In addition, it was told some distributors were working with suppliers to return inventory as the new equipment market could all but dry up.
Prescience Point said its “months’-long” investigation had included a deep forensic analysis of Middleby’s financial statements and interviews with key distributors and restaurant industry experts.
The company said that consensus currently expects FY20 revenue to decline high-single-digits with a slight rebound in FY21. In absolute terms, that implies Middleby’s FY21 revenue will be slightly above what it generated in FY 18, it added.
“These expectations are implausible because even if the economy and the restaurant industry had a ‘V’ shaped recovery in FY20, Middleby wouldn’t participate as restaurants delay Capex, grapple with heavier debt loads and lost revenue, and used equipment sales eat into revenue,” it warned.
Middleby has been contacted for comment.