GRAND PARADE INVESTMENTS

Share price: 616c JSE code: GPL

HOLD GRAND PARADE INVESTMENTS HAS shifted from a gaming-aligned investment company to a specialised counter with an intense focus on the food sector via ownership of the Burger King master franchise, a 10% stake in JSE-listed Spur Corp and food support services. GPL is no longer a value play, but sentiment hinges on just how quickly and profitably the company can roll out Burger King outlets. GPL has already slowed the sluggish expansion of Burger King in the short term (it still intends opening 250 stores in the medium term) in a bid to make absolutely sure the operating margins are fat enough.

The margin enhancement effort is being helped by a slight revising of the expansion plans to incorporate more “drive-thru” outlets. From what can be garnered from the fledgling chain of Burger King stores is that margins of almost 60% are not unreasonable, especially since GPL has cut overhead costs by localising much of the food preparation process.

Perhaps the more intriguing consideration is how long it will take for GPL to shift closer to Spur (or vice versa), a development that could hold huge synergies for Burger King in procurement, marketing and distribution. At the moment it seems Spur and GPL are politely interacting (GPL CEO Alan Keet now serves on the Spur board), and it may still be some time before there is a commitment to reinforcing the relationship. There’s clearly a lot swirling around on GPL’s plate, which probably makes the share a hold at this point.