Spur (SUR) will be the stock in focus: (Price at time of writing: R29.20 (7 September 2017))

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chart created with amCharts | amCharts
Background and overview of Spur Corporation (SUR)
Spur Corporation consists of Spur International, Spur Steak Ranches, Panarottis Pizza Pasta, John Dory’s Fish, Grill & Sushi, Captain DoRegos, The Hussar Grill and a 50% stake of RocoMamas. Spur Corporation is discussed on greater detail below.  

Spur Corporation owns a number of household brands, most notably Spur Steak Ranches, Panarottis Pizza Pasta and John Dory's. They have however over the last couple of years, acquired a number of lesser known brands. With the idea being that Spur Corporation can make the smaller brands expand and grow at a significant rate, using Spur's years of know how and capital backing.

Spur has been known over the years, to rather focus on organic growth (growing the companies they do have) instead of growth by acquisition. Famous Brands (FBR), another listed food and restaurant company, has followed the opposite approach. They have been on a shopping spree that would embarrass Paris and Nicky Hilton (their acquisitions include Mugg&Bean, Tashas, Milky Lane, Vovo Telo to name but a few).

But in recent times it seems like the two companies have traded places. Spur has been buying companies (including RocoMama's, The Hassar Grill and Captain Dorego's), while FBR has slammed the brakes on their buying spree and is now looking to grow their businesses that they do own. ​

​The graphic below shows the share price performance of Spur Corporation over the last 4 years. Note the graphic is interactive, as users can chose the dates, change the colours, download the image or the data used.

SUR share price history

Percent change:

The graphic above shows Spur's share price history over the last 4 years. Users can change the colours on the chart and zoom in and out and the graphic will recalculate the return over the user selected period as well as download the data should users want it.
Financial review:
Starting our financial review, we will take a look at SUR's income statement via the funnel chart below. This hould give readers a good idea of the revenue earned, expenses, taxes and net profits made (if any).
​Scroll over or click on the funnel chart to get more details of SURs latest financial results
funnel | amCharts
From the funnel chart below it is clear that SUR does make a fair amount of money (net profits being reflected by the green part of the funnel chart0 based on their turnover received (light blue part of funnel chart). SUR sits on a net profit margin of just under 21%, I.e for every R100 received by the group, they walk away with net profit of R21 after paying all their bills and taxes.
​The graphic below shows the contribution of Spur's holdings to their turnover/revenue and contributions to pre tax profits. Due to losses from certain divisions the pie chart representing the contributions to operating profits only shows divisions that made profits and their relative contributions to such profits (Captain Dorego's loss is shown as a null in the 2nd pie charts).

​Out of total profit making divisions, Spur steak ranches contributes 60% of the total profits made by all profitable divisions. It is and will be the main driver of revenues and profit for Spur corporation for the foreseeable future. New star "Rocomamas" franchise money made up 5.2% of pre tax profits, while it contributed roughly 4.5%  to revenues for the group.
3D donut | amCharts
Rocomama's is busy rocking Spur's world. There has been a massive increase in the number of new RocoMama stores opening and their popularity has gone from strength to strength. When Spur acquired Rocomama's in March 2015 there were only 3 stores open, by end June 2015 (when Spur Corporation presented their financial results there were 9 restaurants open). By Feb 2016 there were 32 RocoMama restaurants open with another 9 coming soon. Spur announced in today's results that Rocomamas would be opening their 50th store this year. Exceptional growth in number of stores open for Rocomamas. The Hassar Grill has been making a name for itself as one of the premier steak and grill houses around, taking on Famous Brand's steak house offering "Turn 'n Tender".

We mentioned in our Food and Beverages Sector Page that the industry that Spur is operating in is finding itself in a very tough climate right now with struggling middle income earners in South Africa. Spur in their results make mention of the economic environment they are operating in, stating the following "Spur Corporation's performance for the year to June 2017 reflects the combined impact of deteriorating economic conditions and growing uncertainty on the retail trading environment in South Africa."

Spur's diluted headline earnings per share of R1.40 places SUR on a PE ratio of 20.7, which is pretty high, but considering the fact that SUR full year dividend  comes in at R1.32 (down almost 6% on the dividend announced last year), places SUR on a dividend yield of 4.5%, which does help offset the relatively high PE ratio.

​Spur has cash and equivalents in the bank of R265million (or  R2.45 a share in cash), And Spur generated R234million in cash from their operating activities, which equates to roughly R2.16 a share in cash generated. This shows the business is extremely cash generative.
A few financial ratios to mull over for Sasol (calculated using our Financial Ratios Calculator):
  • Debt to Equity Ratio: 0.18 (more than 2 shows high levels of financial leverage). 
  • Current Ratio: 4.56 (A measure of liquidity. Less than one signals possible trouble in paying off current liabilities). Strong ratio for Spur
  • Quick Ratio: 4.42  (Another liquidity measure. Shows how much in liquid assets is available to cover current liabilities or short term debt).  
  • Return on Assets (ROA): 13.52%
  • Return on Equity (ROE): 16.01%
  • Net Profit Margin: 20.68%
  • Dividend Yield: 4.52%​
Valuation
While the consumers in South Africa are under pressure, there seems to be little stopping them from dining out more regularly and foregoing cooking at home. Spur seems to have changed their conservative organic growth strategy for a more aggressive growth by acquisition and rapid expansion strategy. They hold extremely strong brands (in particular with Spur Steak Ranches, Panarotti's and John Doy's,) and it seems in the not to distant future Rocomama's will be added to that list too since it is fast becoming a household name, with it looking set to open it's 50th store this year.

Based on Spur's current financial results and financial statements, its strong dividend yield, its current set of brands and the market they operate it, we value Spur Corporation at between R33.60 and R33.70. Sure it puts them on a PE ratio of 22.3 but the dividend yield would still be close to 4% and with the Rocomamas expansion going strong, we see no reason why long term investors should not but SUR at below our valuation price.

​We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.

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