Monday, 26 October 2015

Vamoose

Chilangos are back

Having raised £2.1m in a mini bond last year on Crowdcube, the Mexican restaurant chain is now looking for £1m for just over 3%  - in equity this time.

We are not fans - of Mexican food that is. And we are not fans of this investment either. The company has been trading since 2007 and is yet to get close to showing a profit even with 8 London sites. It has gobbled up over £7.5m in losses and is now looking to expand outside of London.

This expansion can only take place if it raises another £4m and then borrows another 5.5m in the next two years. This gives the business a gearing ratio in 2016/17 of almost 60% which is high for a company without any record of profit making.  The projections show a steadily increasing margin and a steadily decreasing relative cost base - including property costs for new openings. This we feel is on the chilli side of optimistic.

Right from day one they have traded at a loss and just kept on opening more loss making units - it reminds one of the fated Whittard model. The PR has always shown them on the up and up but the figures do not lie. 2007 one unit lost £100k. In YE 2010 a turnover of over £3m produced a loss of £1.2m. You get the picture. Call us old fashioned but we think business is about making a profit. What is a brand worth if its only asset is a loss making facility?

Chilangos have already tried to expand outside of the capital - twice. Both times the move proved to be a disaster and both units, one in Bluewater and one in Sheffield have closed. Setting up new restaurants costs them roughly £450k so closing them shortly afterwards is expensive.

Take a careful look at their leeway to make similar mistakes again - there isnt any. With spiralling costs this move is the company's last chance to get into profit and everything has to go exactly to plan. It strikes us as a slightly desperate one. New food trends develop over time and the Mexican fad will not last forever. They have already had almost 10 years to prove something. Ratings for their offer are ordinary at 4/5 - not exactly fire eating.

On Crowdcube you generally know something is up when a pitch's major opening gambit is to tell you who the famous people are that support it. We'd like to know what amounts these guys have invested - from the AR it looks like not a great deal and in ever decreasing amounts as the business has raised yet more capital. You may also notice, as with many CC pitches, the latest accounts for YE 03/15 are due out in 2 months time so they could easily have been brought forward if they had any good news in them.


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