Hedge Fund Pleasant Lake Ups Its Position in Del Taco Restaurants Inc (TACO)

Page 2 of 2

Del Taco’s new restaurant return-on-capital metrics are attractive. For a net investment cost of $900,000, management estimates that the company will earn a restaurant contribution margin of 17% and a cash-on-cash return of 25% by year three.

Analysts are bullish. Wedbush has a $19 a share target, and believes that Del Taco deserves at minimum a QSR peer average valuation given Del Taco’s fast same store sales growth and its attractive return on capital metrics. Wedbush also likes Del Taco’s chairman, Larry Levy, who has a long track record of delivering successful growth.

Based on relative valuation, Del Taco Restaurants Inc (NASDAQ:TACO) shares are attractive. With a forward PE of 30, Del Taco trades at a cheaper valuation than Chipotle’s 32 times forward earnings, even though Del Taco will likely grow faster than Chipotle over the next 5 years. With same store growth of upper single digits, Del Taco’s growth is faster than El Pollo Loco, which had a disappointing Q1, with company operated same store sales growth of just 3.4%. With an enterprise value of $592 million and an adjusted EBITDA of $58.8 million, Del Taco’s EV/adjusted EBITDA of 10 is lower than El Pollo Loco’s EV/ 2015 adjusted EBITDA of 12.68 as well.

If Del Taco management can deliver on growth and same store sales remain healthy, Del Taco shares will be a good investment in the long run.

Disclosure: None

Page 2 of 2