$STKS investment thesis

The One Group Hospitality

The One Group Hospitality is a small-cap company in the restaurant industry. They operate in the Fine Dining segment ( open restaurant, bar area with a DJ, premium cocktails,..) having high-end locations worldwide, in addition to providing hospitality management services to hotels, casinos, and other upscale venues. 

The company consists of three complementary brands: 

  • Steakhouse (its flagship brand) premium restaurants & high vibe atmosphere with locations averaging around 10,000 square feet and an average check per person exceeding $130 (2022)

  • Kona Grill, which was acquired at a huge discount in 2019 due to bankruptcy. Kona Grill’s locations are approximately 7,000 square feet and cater to casual dining with an average check per person around $60 (2022)

  • One group Hospitality: hospitality management partnerships with hotels, casinos, and other high-end venues (presence in London, Dubai, Las Vegas,..)

The One Group Hospitality was founded in 2004, with its first restaurant in New York. The founder still serves as director and one of the main shareholders of the company. $ STKS went public through an IPO via a SPAC in 2013. In the initial years on the market, the company experienced limited growth and a stock price decline of over 60%. However, in 2017, with the appointment of their current CEO, Emanuel Hilario, the company initiated a transformation, focusing on efficiency and growth, which was slowed down by COVID but is reactivating in recent months

In October 2019, STK completed the acquisition of Kona Grill, acquiring 24 restaurants in the United States. STK paid $25MM in cash and assumed $11MM in working capital liabilities for a company that was generating over $100MM in revenue. Kona’s bankruptcy was due to the fail of its rapid expansion strategy (in the same 2019, Kona had closed 16 restaurants in the first 9 months of the year)

At present, The One Group Hospitality operates 65 restaurants, including 26 Steakhouse locations, 26 Kona Grill establishments, and 13 F&B venues. They are projecting a growth of 6 new Steakhouse locations and 5 new Kona Grill restaurants each year (our estimations are more conservative – we apply an independent model for its expansion strategy with our assumptions). The company has a market capitalisation of $138MM and an Enterprise Value of $174MM.

Their growth during the period from 2019 to 2022 has been impressive, with revenues increasing by 163% and EBITDA by 57%. All of this was achieved while keeping net debt below $40 MM, repurchasing over 5% of the shares, and expanding the number of STKS stores by 25%. Furthermore, the management owns more than 20% of the company’s shares. However, despite all these positive factors, the company is currently trading at a multiple of approximately 4 times EV/EBITDA23 due to both some sector related concerns and other company’ specific.

Our goal today is to analyse the impact of all of these and provide an understanding and assessment of the company to determine if there is an opportunity, how significant it is, and what potential risks could arise that need to be closely monitored.

To do this, we provide a detailed analysis of all aspects of the company, including the business model, strategy, management, capital structure, valuation… We are particularly focusing on critical points such as the analysis of cash flows for their aggressive growth plan, the normalisation of customer spending during the COVID-19 period, the current inflation and interest rate scenario to model the company and obtain a valuation for $STKS. This valuation is calculated via the DCF, M&A multiples (as its closest competitor was acquired by Darden Restaurants this summer) and it’s comparable.

To have a first idea of the company:


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