WATCH­ING WITH IN­TER­EST, BUT NOT BUY­ING

Finweek English Edition - - SIMON SAYS -

Eclec­tic Brands is go­ing to be list­ing on the JSE in late March at an ini­tial price of 100c. It op­er­ates in the quick-ser­vice restau­rant space (a sec­tor I like), with a num­ber of brands in­clud­ing Pizza Per­fect, Chick­en­tyme, Burger Per­fect and Gio­van­nis, none of which I have heard of. I have a num­ber of con­cerns. Firstly, earn­ings per share (EPS) for the year end­ing Fe­bru­ary 2015 are ex­pected to be 2.5c, putting it on a his­toric P/E of 25 times on l ist­ing – not cheap. How­ever, the list­ing pre­sen­ta­tion says it ex­pects EPS for the year end­ing Fe­bru­ary 2016 to be 6.14c, putting it on a for­ward P/ E of around 16 times – bet­ter, but there is a big but here. It ex­pects to al­most triple earn­ings in the f irst year, mostly as a re­sult of the new brands kick­ing in as they are only in­cluded in the re­sults for the FY16, but the stock is still not cheap with no well-known brands and a man­age­ment team that lacks ex­pe­ri­ence in the space. Lastly, it will have 161 out­lets in 2015, with a list­ing mar­ket cap of R500m that equates to over R3m a store. I will be watch­ing with in­ter­est, but I do not see my­self buy­ing Eclec­tic shares.

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