BUY: Spur Corp
Share price: R23.21
JSE code: SUR
With all the media commentary and, at times, hysteria about the coronavirus there has been global stock market knee-jerk reaction, with asset valuations plunging in areas that investors believe will be affected. Travel-and leisure-related stocks have taken a tumble because of cancellations and the fear of travelling. Energy stocks have dropped on the lower oil price, and retailers are concerned about less direct shopping due to the risk of contagion.
But not all is gloomy. The food sector has fared better than most. People still have to eat. They may dine out less, but there are takeaway deliveries for those who are based at home.
IM’s "buy" choice is Spur Corp. It recently recorded fair results and is aided by a recovering domestic operation after an event damaged the core Spur Steak Ranch brand in 2019. Menu reinvention, a slew of domestic brands for the affordable to higher end and growing African interests provide some balance. The business is aided by a rock solid, cash-rich balance sheet; recent and potentially ongoing share buy-backs will aid headline EPS.
We do not believe the counter will be immune to any increase in the spread of coronavirus cases in SA. But we feel Spur has the best positioning of fast food stocks overall, given the nature of its businesses and its financial situation.
HOLD: Famous Brands
Share price: R49.95
JSE code: FBR
The 800-pound sector gorilla has over the past years been on a diet, as dire results following the disastrous and very costly pre-Brexit acquisition of UK business Gourmet Burger Kitchen (GBK).
That transaction, which was undertaken with pots of debt, occurred in mid-2016 at a cost of R2.1bn (£120m).
Famous Brands has lived to regret that expensive burger.
The deal was meant to shield and give some growth to Famous Brands, whose SA business encompasses 2,000 outlets of its Wimpy, Mugg & Bean, Steers and Debonair Pizza brands.
Terrible results from GBK brought about a consumer slowdown in that market just at a time when SA was going into a period of economic weakness and lower consumer spending.
With troubles on two fronts Famous Brands’ earnings plunged as it was faced with rightsizing GBK and with mounting losses, heavy debt loads and weakening domestic markets in both countries.
The Famous Brands share price of R160 at the time of the GBK deal is now down almost 70%.
And a recent trading update gave little encouragement.
We rate the stock a hold, as much of the bad news is in the price, though coronavirus may still have a sales impact in both regions.
SELL: Taste Holdings
Share price: 3c
JSE code: TAS
How the mighty has fallen. From a high of more than 500c in mid-2015 Taste Holdings recently dropped to 1c.
Overly ambitious expansion plans to launch international brands Starbucks Coffee and Domino’s in SA very quickly led to a money-losing pit of despair.
Losses from fast food ballooned, and a growing call for money from shareholders brought about a slew of discounted rights issues to shore up the company.
More than R1bn was pumped into the failing fast food business, but with no turnaround in sight and losses in food of about R600m, management finally threw in the towel in November 2019.
It announced that it had sold Starbucks for a pittance and planned to exit all its fast food businesses. Maxi’s and The Fish & Chip Co went in mid-November 2019; no sale price was disclosed. As Taste acquired The Fish & Chip Co in 2011 for R65m, the lack of disclosure, given the (then) market valuation of Taste of R200m, means that in terms of JSE disclosure rules it was sold for a song.
Taste plans to remain a business involved in retailing jewellery via NWJ and Arthur Kaplan. But that division has been loss-making. It has a market value of R66m and its only valuable assets are cash (R35m at interim results) and inventory — and maybe the JSE shell listing.
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