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Taste Holdings (TAS) will be the stock in focus: (Price at time of writing: R2.55) : 30 May 2016
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Background and overview of Taste Holdings
Taste Holdings (TAS), dubbed by many as a mini Famous Brands, owns various restaurant and jewellery outlets and a few manufacturing plants. One cannot help but think their business model is based on the vertically integrated and very successful Famous Brands. Taste owns and franchise out various brands.
Their brands include:
Their brands include:
- Zebro's
- Maxi's
- Domino's Pizza South Africa
- Starbucks South Africa
- The Fish and Chips Company
- Arthur Kaplan
- NWJ
- Worlds Finest Watches
Scroll over or click on the funnel chart to get more details of TAS's latest financial results (Year ending 29 February 2016)
Financial review:
There is not much to write home about in Taste's current financial results, as it skewed by significant costs incurred to set up Domino's Pizza (by converting their old Scooters Pizza outlets and St Elmo's outlets to Domino's Pizza outlets), Starbuck South Africa and two dough manufacturing plants to be used for Domino's South Africa. Total setup costs of Domino's South Africa cost Taste Holdings almost R63million. Currently 74 Domino's pizza outlets that has been rolled out over the last 16 months by Taste Holdings
For their 2016 financial year, the start up costs of Starbucks South Africa has amounted to just over R8million. This figure is expected to balloon in the new financial year as Starbucks SA is only being truly rolled out after 29 February 2016 for which these financial results are valid.
For their 2016 financial year, the start up costs of Starbucks South Africa has amounted to just over R8million. This figure is expected to balloon in the new financial year as Starbucks SA is only being truly rolled out after 29 February 2016 for which these financial results are valid.
The graphic below shows the contribution of TAS's major holdings to their turnover/revenue. Since significant losses were made in certain divisions due to abnormally high start up and once off costs we will not be looking at contributions to net profit but just the turnover achieved by their various divisions.
From the above analysis its clear that TAS's major source of revenue is their luxury goods division which includes jewellers NWJ, Arthur Kaplan and World's Finest Watches. This will however in all likelyhood change once all the Domino's pizza's stores have been rolled out and Starbucks SA has come online fully.
Currently their luxury goods division is performing extremely strongly and generated pre tax profits of R63million based on turnover of R570million (giving the luxury goods division a operating margin of roughly 11%).
Currently their luxury goods division is performing extremely strongly and generated pre tax profits of R63million based on turnover of R570million (giving the luxury goods division a operating margin of roughly 11%).
Valuation:
While it is hard to place a valuation on TAS due to the amount of costs they are incurring to roll out their brands, one should remember that this will not carry on into perpetuity. This costs will come down and revenues and profits from their aggressive roll out of their brands will start to filter through. They have sole distribution/franchise rights on two very well known international brands (Domino's Pizza and Starbucks).
Based on TAS current financial results and its current brands its rolling out and planning to roll out, we value TAS at between R2.90 and R2.95 (this valuation is based solely on their luxury goods business). So it completely excludes their Food businesses. Due to current costs being incurred in this division a valuation on this part of the business will not be undertaken.
We therefore feel at their current price they present a good buying opportunity as we value the luxury goods business alone at between R2.90 and R2.95. Once the Food division roll out costs starts decreasing and income starts coming in there is the potential for substantial upside in TAS, if investors are optimistic about the future of their international brands (Domino's Pizza and Starbuck South Africa).
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.
Based on TAS current financial results and its current brands its rolling out and planning to roll out, we value TAS at between R2.90 and R2.95 (this valuation is based solely on their luxury goods business). So it completely excludes their Food businesses. Due to current costs being incurred in this division a valuation on this part of the business will not be undertaken.
We therefore feel at their current price they present a good buying opportunity as we value the luxury goods business alone at between R2.90 and R2.95. Once the Food division roll out costs starts decreasing and income starts coming in there is the potential for substantial upside in TAS, if investors are optimistic about the future of their international brands (Domino's Pizza and Starbuck South Africa).
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.