Bitter taste in the mouth
Grand Parade Investments (GPI) is not having a royal old time with its Burger King master franchise for SA. In fact, it appears it has bitten off far more than it can chew. The bottom line in the six months to end-september was that the iconic burger brand lost R9.5m off its base of 90 restaurants, most of which are corporate-owned outlets. I’m sure GPI — certainly at the time of signing the Burger King deal in 2012 — would have expected to be serving up meaningful profits off a 90-strong store base by now. What is interesting is that the Burger King chain only grew by a net three outlets in the interim period — which hopefully speaks to efforts to secure great sites and fatten margins.
The interim record shows Burger King’s total revenue for the year increased by a hefty 35% to R495m on the back of new restaurant growth and, more importantly, an increase in the average revenue per store (ARS). ARS increased by 8.1% to just over R1m during this period, and GPI believes this is indicative that restaurants opened in the past 12 months are performing well.
The group also reiterated that its objective of achieving an ARS of R1.2m by June this year was on track. Even more heartening was that the average “ticket price” at Burger King increased markedly from R78 to R84 — not a bad achievement considering consumers are not exactly overindulging in little luxuries like takeaways. While there are some numbers to relish at top line, the bottom line was gnawed away by higher raw material prices, the tax on sugary drinks and the VAT increase. Earnings before interest, tax, depreciation and amortisation went up marginally at R21.5m, with margins coming in a lot leaner at 52% (previously 58%).
Though GPI directors expect Burger King’s margins to fatten over the next six months, the perspective of the group’s merry band of activist shareholders will be critical. They are no doubt acutely aware that continued losses at Burger detract from the compelling value proposition contained in GPI’S cash-spinning gaming investments. I’ve said this before: GPI needs to find a strategic partner with the undisputed food sector skills to take the majority stake in Burger King (and associated entities).
GPI can, if necessary, retain a minority stake to ensure it gets some longerterm top side, and then resort to being a plain old investment company again.
File or flee
The share price of document storage business Metrofile has crumpled after some particularly poor interim results, which some market participants seem to have interpreted as the beginning of the end. That said, investment company Sabvest* must be ruing a decision to increase its stake in Metrofile over the past 12 months, snapping up 21.5-million shares for about R70m. That’s an average price of 323c a share compared with a share price of about 156c at the time of writing. Sabvest now holds an influential 11.3% stake in Metrofile, which puts the investment company headed by Christopher Seabrooke in a most interesting position.
Is Sabvest — a longtime backer of Metrofile (since the MGX meltdown many moons ago) — willing to snap up more shares in the beleaguered group? For the record, it would cost cash-flush Sabvest about R670m to acquire all of Metrofile at current prices.
With an attractive take-out premium (say 200c a share), let’s call somewhere around R780m. Perhaps Metrofile needs to take its recovery medicine away from the public gaze, and Sabvest might provide a suitable environment for such corrective measures to take hold quickly.
But that assumes Sabvest still remains enthusiastic around Metrofile’s longer-term prospects — something that may only be evident if there is further open-market buying and the investment counter breaches an ownership threshold that requires Sens disclosure.
GPI needs to find a strategic partner with the undisputed food sector skills to take the majority stake in Burger King