What’s up, y’all. Lucy C back to break down a company for Equity.Guru; this time we’re looking into the food business where Happy Belly Food Group (HBFG.C) has been quietly (and I do mean quietly) gobbling up small restaurant chains, such is their business model.

The companies they’ve been chewing on aren’t ones I see in my local strip mall usually, but there’s something to be said for spotting an opportunity out there in mom’n’pop land, buying it up for cheap, and putting your know-how to scaling up quickly.

The food biz is going through some things with the rise of delivery apps (which gouge the heck out of retail locations and consumers, and encourage folks to stay in) but there’s still a lot of food court business out there for smart players in trending verticals.

HBFG’s most recent ‘acquisition’ of Rosie’s Burgers, which has four locations in Toronto, is less a purchase than it is a rights agreement to go halvsies on future franchise locations, which keeps the upfront costs down. That’s a good thing when the stock isn’t rocking out and interest rates are high, but it means there’s a lot more grinding to come (no pun intended) to scale up.

Let’s look at the most recent numbers:

• Revenue Growth: The company’s revenue saw a more than twofold increase to $2,361,384 for the first half of 2023, up from $944,858 during the same period in 2022. This marks a substantial upward trajectory in sales, reflecting successful business operations.
• Net Loss Reduction: There’s a notable improvement in the company’s profitability, with net losses decreasing to $898,482 for the six months ended June 30, 2023, from $1,002,248 for the comparable period in 2022, indicating a reduction of approximately 10.35%.
• Working Capital: The positive working capital of $1,044,708 suggests the company’s current assets are sufficient to cover its current liabilities, which is a positive sign of short-term financial health.
• Acquisitions: The acquisitions, including Pirho Grill, Lettuce Love, and Heal Lifestyle Inc., demonstrate the company’s aggressive growth strategy and expansion into new markets.
• Liquidity Risk: Despite the positive working capital, the company has warned of high liquidity risk, hinting at the possibility of facing cash flow challenges in the absence of further financing.
• Debt Financing: The company’s use of convertible debentures to raise capital indicates a reliance on debt financing, which could become a concern if cash flow from operations is not enough to cover these obligations.

There’s a lot to like here in how the company has progressed its model, but relying on debentures at a time when interest rates are high, rather than simply diluting the share count, is definitely a call that some would question. Scaling new acquisitions quickly should have investors eager to climb on board, but if my boss hadn’t have pointed me to this ticker, I might not have spotted it in the wild. Telling the story and increasing market cap is as important as increasing revenue.

Recognizing the company’s growth prospects are tempered by short term financial challenges and the need for careful risk management brings this down a letter grade for me, to a B-.

— Lucy Copperpot

FULL DISCLOSURE: No commercial arrangement here, at all