This is why struggling Taste Holdings sold Starbucks
JOHANNESBURG - Struggling Taste Holdings’ majority shareholder Sean Riskowitz has backed the company to turn things around despite posting underwhelming results and offloading some of its assets.
Riskowitz, the chief executive of Protea Asset Management, the majority of Combined Motor Holdings (CMH) and Calgro M3, said that Taste Holdings exhibited very strong long-term business economics.
Riskowitz said Taste Holdings, whose share price has tanked 95.51 percent in the last three years, would eventually bounce back.
He said the selling of Tastes’ Starbucks franchise required the approval of Starbucks international.
Riskowitz said the franchise was difficult to manage as it came with a funding requirement for a minimum store rollout of R238 million.
" So the value that has actually accrued to Taste from this sale is not just R7m, but also the transfer of this store build liability, making the transaction with R245m to Taste," Riskowitz said.
This month Taste shocked the market, announcing that it was selling its South African Starbucks franchise for R7 million to an entity called K2019548958 following detailed operational reviews,
The group said in June that its losses widened 32 percent during the year to end February as high operating costs and once-off impairment costs continued to impact on the company's earnings in the year to the end of February.
It said impairments and once-off costs rose to R102m during the period from R24m last year with R58m attributed to the food division and R44m to the luxury goods division. Riskowitz said taste was now focusing on its jewellery brands that include NWJ Jewellery and Arthur Kaplan .
He said the jewellery business was profitable, cash flow generative and solid with plenty of growth opportunities.
"Shares represent the price of a company, but value is a measure of the underlying intrinsic worth of a company."
He said he was equally confident about his other investments in South Africa, charging that Calgro generated more than R400m in cash from operations in the six months to August.
“”Their cash earnings PE ratio is now 2.5x. Does it really make sense that the share price should be where it is in that context? We also know from Calgro's own calculations that if they liquidated the business the shares would be worth around R23 per share, versus a market price of just R4,” Riskowitz said. “Calgro is a perfect example of an exceptional opportunity that people will look back upon in a few years and kick themselves for missing." Riskowitz said he was positive about South Africa despite business confidence sliding to its lowest this year in the third quarter.
"At this time, many people are fearful about the future of South Africa, and so the price at which you can invest is very low compared to the quality of businesses and management talent, in general. We make ten year or more investments and believe the economic and social environment will normalise in due course, creating a long runway of growth and value creation for many South African businesses."