Taste bets farm on Starbucks
AFTER years of questions about why Taste Holdings holds two incongruous business units, the small-cap company is selling out of the jewellery business to focus on food, which includes its licences for Starbucks and Domino’s Pizza.
CEO Carlo Gonzaga said this week that the luxury-goods and food businesses were in different phases of maturity, capital returns and working capital requirements, which meant different financial and operating models.
Gonzaga said that after stabilising Domino’s Pizza and launching Starbucks, management had a clearer picture of the long-term potential for the food business.
“We have ended up with two businesses that are really disparate. One is a start-up that should be debt free and one is a mature business that is a bankers’ dream — they require very different funding models,” he said.
“Probably the only thing that’s really changed is we’ve, for the first time, had a real view of the potential of the food business . . . Certainly more than we originally anticipated.”
There are no buyers for the jewellery business yet and no price has been announced but it is estimated to be between R300-million and R350-million. Taste also plans to issue a second rights issue to raise R120-million.
The sale will leave the group debt free and with the cash to accelerate the roll-out of Starbucks and Domino’s.
This year the group will open nine Starbucks stores and between 15 and 20 next year. Smaller Starbucks stores will cost about R3.5-million to R4-million to open, while the big stores cost R6-million to R8-million.
The company has the rights to take Starbucks into Africa, but is in no hurry. “We’re not yet in Cape Town or Durban,” Gonzaga said.
The business had been under pressure because investors were concerned that Taste took on too much in licence agreements with Starbucks and Domino’s. Its share price lost 23% in the past year.
Anthony Clark, Vunani Securities’ financial and industrial smalland medium-market-cap analyst, had a negative view on the counter since it was trading at 405c. “When I believed the market had widely overanticipated Taste’s valuation on the back of pure hype on expectations from its Domino’s Pizza and Starbucks launch,” he said in a research note this week.
“Since Taste embarked on its food drive with Domino’s and Starbucks, a total of R680-million (net) has been raised in new capital to fund the business, which to date had not performed to expectation. The share price, reacting to ongoing operational performance, has justified by negative stance.
“The jewellery side has always sat uncomfortably in Taste in the eyes of some shareholders.”
Absa Wealth and Investment analyst Chris Gilmour said jewellery had often been perceived as out of kilter with what was mainly a food-franchise business. “With Starbucks especially, Taste has bet the farm on its future success.”