Val Nichas has shepherded Spur’s sales back to pre-Covid levels in her first year as CEO. But the market hardly seemed wowed by the group’s results to end-June, despite a 32% jump in revenue to R2.4bn.
In the year to date the share has remained stubbornly fixed at about R22, despite a remarkable post-Covid recovery, not to mention the growing pile of cash.
Cobus Cilliers, senior equity analyst at All Weather Capital, says the market “is maybe not as enthusiastic about the results as I think it should be”, given the amount of tax Spur has paid over the year. Taking that into account, adjusted headline earnings come to R1.82 a share, rather than the reported figure of R1.44.
Cilliers says: “I think the company is trading well. There is certainly a strong recovery in consumer spending and sit-down dining. The investment case for Spur is very positive.”
He says the strategy followed by Nichas for extracting future value for shareholders is “well thought out, with proper execution plans in place”. The dividend is also welcome, he says.
Spur declared a final dividend of 78c a share, bringing the year’s total to 127c. The group is ungeared and has cash on hand of R291m, or about R3.20 a share, which equates to about 15% of the value of the listed entity. This gives Spur options for shareholder value creation, be it share buybacks, higher dividends or investments for future growth. “And the company has bought back about 1.475-million shares over the year, which reduces the share count further even before the start of the new financial year,” says Cilliers.
Spur’s performance is way ahead of Steers owner Famous Brands, whose shares have given up 25% in the year to date. Over one year, Famous Brands stock is 9.5% higher, against Spur’s 28% rally.
The pandemic seems well behind the company, which, like other restaurant chains, was battered by SA’s harsh lockdowns and draconian booze bans.
And it is one of the few businesses that benefit from load-shedding as consumers escape their dark homes for sit-down meals at restaurants.
Panarottis, John Dory’s and RocoMamas lifted sales by a third while the speciality brands grew sales by 52%, with a strong recovery at The Hussar Grill. Profit before tax surged 41.9% to R210m. Takeaways, meanwhile, were up 30%; the highest percentage was from RocoMamas (57%) and Panarottis (39%).
Says Nichas: “We’re most grateful that we have benefited from the improved market conditions, and we won’t ignore the fact that a lot of this has to do with the improved operating situation out there.”
Spur has picked up on new trading patterns, she says. Before the pandemic, spending tended to level out in the middle of the month, while on payday people came to splurge — so Spur could almost plan sales. But now, foot count is higher in some months, slower in others.
As for Spur’s brand identity, the group is talking to consumers to determine what needs to be adjusted.
The biggest challenge is how we procure better, because of the increase in food prices, and that’s going to require some really creative thinking
— Val Nichas
Nichas says the process is more a regeneration than a rebranding, and declines to comment on the logo. “We will responsibly evolve the brand from sheriff badges and crooks … It’s the same as Panarottis, which we refreshed but which still has the red and green. We will probably take the same approach.”
In the year under review, the group opened 23 new restaurants locally, but 15 restaurants were closed due to market conditions. Eight of the closures were in the international market and often Covid related. In Saudi Arabia, for example, Spur opened four restaurants and closed two.
By year-end, Spur had three restaurants in Australasia: two in Australia and one in New Zealand (which was closed after year-end). The group isn’t planning to invest more in the region. Rather, Spur will spend money on its African portfolio, which posted solid trading performances in Zambia, Namibia, Zimbabwe and Kenya. It plans news stores, mainly of Spur and RocoMamas, on the continent.
Spur’s flirtation with drive-through restaurants is also, apparently, paying off: the first RocoMamas drive-through has “exceeded expectations” and led to plans for a second one in Pretoria.
Still, while Spur has emerged through the pandemic intact, spiralling fuel prices are now taking a big chunk out of prospective diners’ incomes.
Says Nichas: “The biggest challenge is how we procure better, because of the increase in food prices, and that’s going to require some really creative thinking about how we source products and transfer value. Franchisee operating costs have increased in terms of fuel and staff, though this differs from store to store.”
Nichas acknowledges that SA is facing “severe” headwinds, but says she’s optimistic, if market conditions remain stable.
Projections for SA’s restaurant sector — which includes fast-food, chain and independent restaurants — are relatively good. The industry is expected to show a compound annual growth rate of 8.6% from 2022 to 2026, according to Euromonitor. Nichas says this offers a positive outlook and an opportunity to leverage growth.
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