WATCHING WITH INTEREST, BUT NOT BUYING
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.