Papa Murphys Closes on New Credit Facility

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Papa Murphy’s announced it has closed on a new senior secured credit facility, resulting in a 200-basis-point reduction in borrowing costs at current rates and expected to yield about $2.25 million in annual interest expense savings, translating into an ongoing, fully diluted EPS benefit in the range of $0.09 to $0.10 annually.

The new five-year $132 million senior secured credit facility consists of a $112 million senior secured term loan and a $20 million revolving credit facility. It replaces the existing $122 million credit facility, which consisted of a $112 million senior secured term loan and a $10 million revolving credit facility.

The company ended the second quarter with $112 million outstanding on the existing facility. Given lower borrowing costs, we are raising our 2014 EPS estimate by $0.03, to $0.52 (or $0.46 using a pro forma fully diluted share count, which compares with consensus of $0.43); our 2015 estimate by $0.09, to $0.53 (representing net income growth of 14% and versus consensus of $0.45); and our 2016 estimate by $0.08, to $0.62 (up 18% and versus consensus of $0.54). At 9 times our 2015 EV-to-EBITDA estimate, Papa Murphy’s trades at a significant discount to its peer group average of 13 times.

We continue to recommend shares given its attractive valuation and multitude of growth drivers over the next few years, including an acceleration in franchised unit expansion, the potential launch of national TV advertising for the first time at some point over the next two years, and a likely expansion of online ordering.

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