For the six months, Spur Corp’s revenue grew 13.8% to R2bn aided by the contribution from Doppio Zero. The total number of restaurants was 726, with 619 in South Africa and 107 abroad. Total restaurant sales grew 10% to R5.9bn. This was padded by a R350.8m contribution from the 60% stake in Doppio Zero, acquired in late 2023. Ex-Doppio, sales growth was a more modest 4.8%.
IM has had a straddle trade recommendation of long Spur Corp and short Famous Brands for more than two years. It’s been the correct call and, for now, continues to be so. Spur has outperformed Famous Brands.
IM liked the relatively affordable, casual family dining offering in the post-Covid “let’s get out” environment. Then when load-shedding hit, Spur became the go-to for families as many outlets had alternative power supplies. We also liked Spur’s cash-rich balance sheet, a standout to debt-laden Famous Brands, which was still recovering from its UK misadventure. We also issued a buy on Spur in the August 2023 issue at R25, with the stock at its peak racing to R38.49 (+54%).
Spur has been trading sideways since June 2024 and IM revisits the counter, given its R33 pricing. Recent interim results also give cause for an update. It was evident from questioning at the Spur Corp AGM in early December that results from the first six months would reflect a more challenging period.
Spur had set ambitious budgets. Trading for the first five months of the interim period, IM understood, was patchy with no discernible national trends. The large regional super malls were holding up with good foot traffic, with patchy reports from subregional malls. Much hinged on the festive sales period to claw back reasonable like-on-like growth.
With the core Spur steak ranches comprising 47% of Spur’s brand footprint but an outsized 70% of South African turnover, that division’s 2.8% growth in the six months to end-December was the deciding factor. Earnings were pleasing, but IM believed Spur was anticipating better results.
Despite operating costs increasing 37.6% to R76.5m and retail store expenses surging 187% to R71.7m on the back of Doppio Zero, overall operating profit still rose 16.5% to R204m with a 12.9% increase in profit before tax to R216.6m. In the split, South Africa contributed 94.3% (R203.7m) and international business 5.7% (R12.4m). Headline EPS rose 11.8% to 178.35c a share, with an interim dividend of 106c a share. Spur ended the period with a fat cash balance of R414m.
Solid growth from a repositioned and rebranded Panarottis and RocoMamas — which reported a six-month turnover change of 14% and 8.4% respectively — was not enough to power the earnings tide. The contribution from Doppio Zero helped, as did growth in international outlets. However, the lack of leverage from Spur steak ranches was the determining factor.
The trend in the fast food and restaurant sector has been flat since 2022, highlighting belt-tightening by consumers
Spur management was more cautious into the second half as the uncertainty of any VAT increase in the revised budget would necessitate a menu pricing change. Data from Stats South Africa showed sector recovery post-Covid, but the trend in the fast food and restaurant sector has been flat since 2022, highlighting belt-tightening by consumers.
Spur, with its range of offerings aided by a strong loyalty card membership of 2.7-million patrons, refreshed stores, paring menu pricing and adjusting its food offering to provide more “tummy-filling value”. Brands were updated and a plan put in place to expand the restaurant network by 8% in 2025, with 47 restaurants in South Africa and 13 internationally.
One impediment to the share price, which is why IM believes Spur is in an extended holding pattern, is the long-standing legal dispute with GPS Food Group. A claim of R262.8m from GPS against Spur hangs in the air. Arbitration concluded in December and both parties await results.
Spur has the cash on hand, but if the case goes against it, this would be a blow. However, should Spur win, shareholders may press for a cash payout from the R414m cash hoard.
Until arbitration results are known, IM finds it prudent to have a hold on Spur Corp, despite favouring the business model.
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