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Franchise Brands lays the foundations for another 10 years

MetroRod has been in operation for 30 years but only became a franchise relatively recently
Drain
Commercial drains are Metro Rod's business

Franchise Brands PLC (LON:FRAN) has just celebrated its tenth anniversary.

Established in 2008 by Stephen Hemsley and Nigel Wray, the business has come a long way, says executive chairman Hemsley, but there is lot more to come, he adds.

Watch: Franchise Brands PLC celebrates 10 years ... and counting!

The business comprises four main brands – drains specialist Metro Rod, car body repairer ChipsAway, dog groomer Barking Mad and Ovenclean.

Metro Rod, the largest of the franchise operations, completed 88,000 jobs during the interim period to March, said Hemsley, a 15% rise on the same period a year ago.

But this is only the start of the expansion plans, he adds.

MetroRod has been in operation for 30 years but only became a franchise relatively recently, with the business being run as a contracting subsidiary of its owners prior to that.

'Vision 2023'

That dulled the entrepreneurial spirit of the 40 or so franchisees, says Hemsley, something he is now working hard to address.

Franchise Brands has every incentive to instigate a change.

The company charges a master service fee of 22.5%, so higher revenues feed straight through to the PLC bottom line.

In the first half of the current year, MetroRod, which deals with problems with commercial premises, generated MSF income of £3.5mln, or a run-rate of £7mln per year, but the plan is to boost this four-fold.

That might sound ambitious, but Hemsley says in most regions it serves, market penetration by its franchisees is around 1-2%.

Any significant improvement would have a major impact on the profitability on both the local franchisee and PLC.

Entrepreneurial spirit returns to Metro Rod

Franchise Brands acquired MetroRod in 2017 and Helmsley admits it has taken a bit of time to get the franchisees back into the mindset of entrepreneurs and grow their businesses, but the penny has started to drop now.

The company has been spending heavily on IT upgrades and the work management system to help the whole process, the benefits of which should also start to show through in the coming year.

IT costs will come down and revenues should rise as order response times improve.

“Metro Rod is capable of significant growth and the investment required to unlock this potential is underway and bearing fruit,” Hemsley said with the interims in July.

For the group overall, interim revenue jumped by 88% to £16.8mln, while underlying profits improved 41% to £1.4mln.

Recurring management fees rose by 86% to £5.4mln, while on a statutory basis, the group swung from a loss of £200,000 to a profit of £1.4mln.

Earnings on the rise

For the full year, brokers have pencilled in underlying profits of £2.8mln, which puts the shares on an earnings multiple of about 23, but that drops to 19 the following year on broker Allenby Capital’s forecast.

At 68p, Franchise Brands is valued at £53.5mln.

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