It’s a Friday afternoon. I spend every Friday afternoon with Toddler Ghost, age three. With hybrid working as the beautiful legacy of the pandemic, I’m not the only one at the local Spur on this gorgeous day. The biggest drawcard is the impressive pirate ship outside, by far the best play area of any restaurant I’ve been to.
The sun is shining, the service is good and my little guy is living his best life while finding innovative ways to nearly knock himself out down a slide. I have cheekily ordered a kiddie waffle, knowing that he will have at most two bites before heading back to play. Finishing up that Bar-One deliciousness is a sacrifice I’m willing to make for him to enjoy his first bite and negotiate with me for the second one.
The burgers are better. The beers are generally cold. Almost every Spur has old arcade games (suitable for the overgrown kids as well … ahem), a climbing area and someone on duty who genuinely does a great job of watching the kids. And of course, there’s still a birthday song if you ask for one! It’s a far cry from the disgusting waffle that I suffered through at Milky Lane a few weeks ago. That chain has lost the plot completely, as my friends with kids agree.
The beauty of such businesses as quick-service restaurants or retail is that you can do the best due diligence possible: go there as a customer. You should also ask your friends for their opinions. Doing so would’ve probably put you on the right side of the Shoprite/Pick n Pay relative trade.
Of course, you need to overlay the valuation and all kinds of other metrics before making a move. Customer research is just one part of the story. It’s just a lot harder to do customer research for industrial companies than it is for consumer-facing companies.
These are high-quality earnings, starting right at the top of the income statement
Back to Spur. Based on my experience as a customer, this thing is cooking. Properly. The latest results suggest the same, with astonishingly strong earnings guidance for the year ended June. Headline earnings per share are up between 78% and 83%, which suggests a midpoint of 260c per share. For reference, that’s about 50% higher than 2019 and more than three times higher than 2020!
The even better news is that this isn’t being driven by huge expense cuts or vast share buybacks. These are high-quality earnings, starting right at the top of the income statement. Total South African sales increased 22.5% for the year. Though there was a significant slowdown in the second half (14.4% vs 31.3% in the first half), that’s hardly a bad number.
Spur is obviously the most important franchise in the group, so the performance in that franchise is quite similar to overall South African performance, with full-year growth of 24.9%. Smaller franchises are a different story; John Dory’s had a poor second half with sales down 1%, taking its full-year growth to only 8.7%.
As a consumer, I’d say RocoMamas is still finding its feet since Spur acquired the group and made changes to its positioning, with sales growth of 9.6%. Panarottis grew strongly, up 18.6%. International restaurants grew 17.8% on a constant currency basis, or 27.6% as reported because the rand has been about as appetising as that Milky Lane waffle.
And that brings me to the speciality brands: The Hussar Grill, Casa Bella and Nikos. Importantly, that segment will soon include the controlling stake in Doppio Zero, a deal that I think will pay off for Spur. Though Doppio Zero has barely made it beyond Gauteng, I have fond memories of the franchise from my Joburg days. Spur knows exactly how to roll out a national restaurant footprint.
Speciality brands was the fastest-growing segment in the group, up 42.2% for the year. The first half saw growth of 62.3% and the second half was much “slower” at 27.2% — still a huge number. The base period included December 2021, when the party was ruined by the omicron variant of everyone’s favourite virus.
Businesses that rely more on alcohol sales (as full-service restaurants do) were harder hit by lockdowns, so the first half isn’t indicative of maintainable growth. The second half number is interesting, though.
Spur is on a p:e of below 10 and climbed nearly 10% after these results. I think there could be more to come here.
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