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Taste Holdings: Looking towards the future with confidence

Taste Holdings

Taste Holdings is a franchise holding firm with interests in fast food and retail. Its brands, Scooters Pizza, Maxis and NWJ Jewellery, are household names in South Africa and have helped the group to make it through the recent economic downturn relatively unscathed.

Explaining the groups trading results for the most recent six-months trading period CEO Carlo Gonzaga admitted that it has been tough going. Earnings per share (EPS) fell by 77% to 2.4% while headline earnings a share fell 41% to 2.6 cents. Although group revenue was up by 170%, reaching a credible R85.8m, profit after tax was a mere R4m, significantly down from that achieved during the same period in the previous year which was R13.7m. In part, this was the result of the high interest charge of 2.55m which arose from borrowings needed to fund the NWJ acquisition.

Gonzaga is not unduly disturbed by this. He explains that, firstly, NWJs contribution to profitability will be higher during the second half of the year as these six months are traditionally the companys best trading months. This established trend is expected to accelerate because NWJ has just unveiled a new store image that is bound to attract more feet through its doors.

On the franchise side, leading commercial banks recent announcement that they have eased conditions for lending will increase the number of new franchisees seeking opportunities in the Taste Holdings stable. It is easy to see that this will impact positively on footprint, market share and fee income.

In keeping with a time-honoured policy of reinvesting profits rather than paying them out, Taste Holdings Board of Directors did not declare a dividend. They decided instead to make further investments in brand building and store expansion. Gonzaga promised that this policy would be reviewed at the end of the forthcoming trading period but investors seem to be sceptical. Following this announcement, Tastes share price fell by 4.3% to 45c a share.

That this happened in spite of a new deal entered into between Taste and Shell that is structured similar to the arrangement the Maxis brand has in place with Caltex shows short-sightedness on the part of investors. This arrangement will see new Maxis outlets spring up nationally on Shell forecourts, creating an almost captive market for the brand. In another effort to boost footprint, Scooters will begin to establish itself in select shopping malls.

It appears to us that instead of battening down the hatches as so many other companies have done, Taste Holdings has continued to build strong foundations. It should reap the rewards of this forward-thinking policy in the not too distant future and congratulations are in order.

 


October 20, 2009

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