Streetfire Kitchens Business Plan — Investment Analysis

The project and equity returns, the exit assumption behind them, and what the numbers do and do not support.

Investment Analysis

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9.1 Returns
9.2 Sensitivity of the return to the exit assumption
9.3 What the return depends on

9.1 Returns

Measure	Base case	Comment
Total funding at launch	RNaN	Equity plus asset finance on the three launch trucks
Capital invested in the project	R4 253 000	Trucks, commissary, equipment and pre-opening cost
Promoter and investor equity	R5 900 000	73.4% of the launch funding
Project internal rate of return	18.4%	Unlevered, five years plus a terminal value at 3.5x EBITDA
Return to equity	4.6%	After debt service, carrying the ramp
Net present value at 12%	R1 701 970	Positive
Net present value at 15%	R830 268	Positive
Net present value at 18%	R88 011	Marginal
Payback period	5.9 years	On unlevered project cash flow; beyond the projection period
Terminal value	R9 577 680	3.5x Year 5 EBITDA
Cumulative project cash flow before terminal value	(R2 459 618)	The return is realised on the terminal position
Assessed loss carried forward at Year 5	R1 510 603	A real shelter against Year 6 and Year 7 earnings, not valued here

Figure 20. Cumulative project cash flow before terminal value.

The project works; the equity carries the risk

A project return of 18.4 per cent on R4 253 000 of invested capital is respectable for a business with real operating risk and hard assets behind it. The equity return of 4.6 per cent is not, and the gap between the two is the finding rather than an inconsistency. Equity funds R3 784 000 of working capital and contingency — the two loss-making years that no financier will lend against — while the asset finance sits comfortably against vehicles with a resale market. Leverage is therefore working in the wrong direction here: it is not amplifying the equity return, it is being subsidised by it. The honest reading is that this is a sound small business and a thin equity investment, and it becomes a good equity investment only if covers land above plan or the ramp is shortened.

9.2 Sensitivity of the return to the exit assumption

Figure 21. Project return under alternative exit assumptions.

Exit multiple of Year 5 EBITDA	Terminal value (R)	Project IRR	Equity IRR
2.5x	6 841 200	12.6%	-1.7%
3.0x	8 209 440	15.6%	1.7%
3.5x	9 577 680	18.4%	4.6%
4.0x	10 945 920	20.9%	7.3%
4.5x	12 314 160	23.3%	9.8%

The base case applies three and a half times Year 5 EBITDA, which is appropriate for an owner-managed food business whose principal assets are vehicles and whose trading rights are not owned. At two and a half times the project returns 14.7 per cent; at four and a half it returns 21.5 per cent. What the multiple is really pricing is the durability of the pitch base and the event pipeline, because a buyer acquiring this business is acquiring a diary rather than a kitchen.

9.3 What the return depends on

Lever	Effect on mature EBITDA	Assessment
Covers per service 15% higher	+R1 373 262	The dominant lever, and the one most within operational control
Average transaction value 8% higher	+R1 179 429	Constrained by what a street customer will pay; easier at events
Trading days 12% higher	+R592 788	Utilisation and weather. There are only so many days in a calendar
Event mix 8 points higher	+R495 399	Requires a sales function and a portfolio, both funded in this plan
Food cost 10% lower	+R464 500	Central purchasing and menu engineering; real but bounded
Crew cost 12% lower	+R294 219	The weakest lever, and cutting it damages the service that drives covers

The ordering is the point. The two largest levers are both about the queue rather than the cost base, and the weakest is the one most food businesses reach for first. Cutting crew to protect margin removes the people who serve the covers that the same table shows are worth three times as much.

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Next section10. Sensitivity and Scenario Analysis