MTY CLAIMS IT’S IN THE RESTAURANT BUSINESS, BUT DERIVING 82% OF ITS EARNINGS FROM KICKBACKS SAYS IT’S IN THE KICKBACK BUSINESS—PART OF AN ELABORATE SCHEME THAT ADDED $214M IN WORTH TO CHAIRMAN STANLEY MA.
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MTY's Fake Stock Value
Updated February 20, 2022
As we discuss here, kickbacks are “commercial bribes” that can cause franchises to quickly close in masse, just as they caused the collapse of Quiznos. We also discuss on our “High Failure Rate” webpage that MTY’s franchise network began collapsing even before the pandemic. Thus, MTY has not been able to grow organically for more than five years.
When a franchise network is unable to grow organically, it’s because the franchisees refuse to reinvest due to a lack of profitability. Instead, they’re forced to close their stores to stop the financial losses. That’s what we see over the past five years in the strong negative organic growth trends of MTY’s franchise network. Kickbacks are killing MTY!
Beginning well before the pandemic, MTY’s closures and inability to grow organically have caused MTY’s underlying economics to decline year-after-year. Even during that period, MTY had consistently grown its stock price by distracting investors from focusing on the company’s negative trends.
After we reported the whistleblower allegations, MTY schemed to keep these trends out of the media. The company likely surmised that it all could evolve to media reports of its kickback scheme, collapsing franchise network and steadily declining financial condition. Clearly, any one of these issues could have caused a massive stock selloff if the public learned the truth.
To hide its decline, MTY Chairman Stanley Ma publicly kept his own hands clean by putting forth high level board members to engage in a cover-up. CEO Eric Lefebvre and former Audit Chairman Gary O’Connor put their careers, integrity and legal status on the line by making materially false statements to investors to cover-up the company’s negative trends.
We also believe investment companies and individuals with a financial interest in MTY’s stock have been manipulating the company’s stock price. It’s not unusual for this stock to make significant gains during trading in a matter of minutes, especially just prior to closing with no market or company news that affects the value.
For example, as demonstrated in this chart and data, multiple firms engaged in a series of trades on 12/10/21 to increase MTY’s stock in the closing minutes. In doing so, they generated the stock’s highest volume of the day. As is almost always the case, a large number of “Anonymous” trades assisted in the effort. In addition, stock runs beginning on 10/4/21, 11/3/21 and 12/1/21 serve as other examples. We believe this and other conduct is intended to confuse investors, inspire emotional buying and artificially increase the price of the stock.
Kickbacks + Cover-Up + Stock Manipulation = Fake Value
We believe MTY’s negative trending issues were being concealed by the company years before Lefebvre and O’Connor’s false statements to investors. Thus, MTY’s stock price was fake value well before the whistleblower announcements and the Forbes article. Despite that, a comparison of MTY’s stock price along with the company’s key metrics around that time, along with an examination of how those metrics changed in fewer than two years, serves as one way of demonstrating the fake value within the company’s stock.
MTY increased kickbacks on franchisees in Q2, 2021 by $5.3M year-over-year to assess a total of $13.6M (PDF pg. 18) for the quarter. By examining MTY’s Q4, 2019 financials and comparing them to the Q2, 2021 financials, adjusted for the Q2, 2021 increase in kickbacks, we’re able to highlight what MTY’s performance looks like without the increase. This will also demonstrate how kickbacks, a cover-up and stock manipulation has caused the price to soar well beyond a price that is not remotely justified by its key indicators.
Prior to trading on 2/24/20, MTY’s stock sat at $49.77. Following it’s Q2, 2021 results in July, the stock traded near record territory, closing as high as $71.27 on 8/9/21. The stock was up 81% in one year alone as of 9/12/21.
However, after adjusting for MTY’s $5.3M kickback increase during Q2, 2021, compared to MTY’s Q4, 2019 financials, the company closed 825 additional locations, revenue declined $19.5M, EBITDA declined $4.9M, and earnings declined $3M, compared to just 18 months earlier. By these numbers, logic dictates MTY is worth far less than the $49.77 it was previously trading for. Yet, curiously, the stock has increased 43%. It’s fake value.
In addition, MTY’s 2019 financials showed that kickbacks increased 15% from $55.5M the prior year (PDF pg. 90) to $63.7M in 2019 (PDF pg. 107). Also, kickbacks, not restaurant services, were an unbelievable 82% of MTY’s earnings. The company was no longer in the restaurant business, it was in the kickback business. MTY continued to supplement its financials with kickbacks knowing the company was paying the price with 2,594 location closures through Q2, 2021, a 15% per year decline in earnings over the past five years and soaring debt.
Thus, we think MTY is worth a fraction of the $49.77 it was selling for on 2/24/20. Yet, as troubled as MTY was in 2019, its franchise network and financial economics were far better off then, than more recently when its selling price was in the $70’s and high $60’s. Kickbacks, cover-ups and stock manipulation has distracted investors into what we feel is a dangerous situation. When all of this was brought to MTY’s attention, they sought to cover it up. Now, government regulators must step in and investigate.
Finally, why is this happening? Follow the money.
Fake value added to the already substantial wealth of MTY Chairman Stanley Ma with a $171M gain during the one-year period of 8/7/20 – 8/9/21. Part of that windfall was his questionable $43M inside sale when the stock was overpriced and investors were in the dark about the whistleblower allegations after MTY, Lefebvre and O’Connor intentionally misled them. This runs similar to the investigation of Enron’s Quiznos for insider trading. We therefore believe this must be investigated.
We believe MTY is in serious trouble and headed for failure if the company doesn’t take immediate and drastic measures to change its course. Innocent people will be hurt! The company has proven it can’t live with kickbacks and it can’t live without them.
Currently, Stanley Ma is in the driver’s seat. If he waits for the company to crash, it may be creditors, attorneys, prosecutors and regulators in the driver’s seat.
A cover-up “always makes things worse”.