Good eat­ing

Finweek English Edition - - Companies & markets - MICHAEL COUL­SON

FOR YEARS AF­TER the com­pany listed in 1986, Spur founder Al­lan Am­bor used to com­plain that par­tially in­formed in­vestors would in­clude his group among the fast­food com­pa­nies, whereas it was, in his pre­ferred phrase, a fam­ily sit-down restau­rant. The fact that his brand­ing was so suc­cess­ful that it was copied by some ham­burger chains may have en­cour­aged the con­fu­sion.

What­ever the rea­son, de­spite turn­ing in con­sis­tently good re­sults, Spur’s record was never prop­erly recog­nised by the mar­ket. The com­pany con­sis­tently grew prof­its, yet year af­ter year of­fered a re­turn that al­lowed me to keep in­clud­ing it – re­ward­ingly – in my high-yield port­fo­lio.

Spur has in re­cent years di­ver­si­fied from the orig­i­nal steak­house chain both prod­uct-wise and ge­o­graph­i­cally. Though 75% of the 334 out­lets are still Spur Steak Ranches, there are also 64 Pa­narot­tis Pizza Pasta and 20 John Dory’s Fish & Grill eateries, while there are 26 Spurs and nine Pa­narot­tis out­side SA.

Most of the for­eign op­er­a­tions are else­where in Africa, but there are some in Aus­tralia and the UK and even a lone Spur in China. How­ever, ex­ter­nal in­ter­ests are still com­par­a­tively small, con­tribut­ing only R6,7m of group rev­enue of R183m in the fi­nan­cial year to June 2006, and are prob­a­bly as yet barely prof­itable.

In the six months to 31 De­cem­ber, rev­enue rose 13,6% to R110m, or by 17,1% for restau­rants op­er­at­ing in both pe­ri­ods. Spur says this shows that it grew its share of an in­creas­ingly com­pet­i­tive mar­ket, and it be­lieves its po­si­tion as a fam­ily restau­rant for the ex­pand­ing mid­dle mar­ket will en­sure this trend con­tin­ues.

Prof­its are pre­dom­i­nantly earned from fran­chise fees, and di­luted HEPS of 38,4c were 17,2% up. The in­terim dis­tri­bu­tion is in­creased from 22c to 26c and as usual will be by way of cap­i­tal dis­tri­bu­tion rather than a div­i­dend – at this stage still a tax-ef­fi­cient op­tion.

For the past 12 months, HEPS are 70,8c and dis­tri­bu­tion 51c. Spur is a strongly cash-gen­er­a­tive busi­ness and at each of the past three re­port­ing dates net cash has been about R40m, al­low­ing a gen­er­ous dis­tri­bu­tion pol­icy.

At the cur­rent 1 130c, the his­toric p:e ra­tio is 16 and yield 4,5%. While the earn­ings rat­ing is now close to the mar­ket av­er­age, the yield is still well above av­er­age and the share should re­main an ex­cel­lent long-term hold­ing.

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