Breadtalk

[RBM]

The point you make is recognised evilbdboi ............. but in one of the two instances where I was vested in a counter which embarked on a real estate sideline, the "part-timer" real estate investor was taken to the cleaners by his much more real-estate-savvy "full timer" JV partner. For BreadTalk ......the devil will be in the detail of the Joint Venture agreements with PCRT and the other partners ....... and IMHO much will depend on the effectiveness of the follow-up management of BreadTalk's interface with their new found real-estate-expert friends.

I am staying vested for the time being. Several analysts have put a target price in the S$ 0.75'ish range.

Vested

Mr George is probably tired of seeing his margin being squeezed by landlords year in year out...
So, he wants to be a landlord now.
Nothing wrong with this move!

But as a shareholder, if you want exposure to property, u may want to ride with property veterans rather than part-timer........

Just a note, Breadtalk is not going at it alone. Its an investment with numerous parties and their percentage of investment is just a mere 4%. One of the major shareholders in the development is Perennial in which their CEO is Pua who started the Reits in Singappore and was CEO of CapMallAsia in the 2000s. Based on his knowledge in China property environment, most likely breadtalk is tapping onto his expertise.

[RBM]

................ after the lord mayor's show. BreadTalk's share price closed down ~ 3.2% to S$ 0.60 today. Heavyish volume of 704,000 shares. I wonder if punters have now made a more sober assessment of BreadTalk's recent Beijing real-estate disclosure?? Or are we seeing the tail end of former substantial shareholder Fang Zheng's exit sales??

Vested

[Ray168]

Hi,

I think we should take another view to value BT. BT is a cash generating machine. Its Net Operating cashflow is improving year after year.

If we take 2011 Net Operating Cashflow $43 million and its total market value $193 million (11Jan2013 @ 0.685 / share), the ROI is 4.48X.

Isn't this attractive?

On TA wise, current price may be too high for entry.



Vested.

Thanks for your one-liner of this morning regarding BreadTalk's "margin discipline" Contrarian,

I have had a further look at BreadTalk's 1H 2012 financials. Whichever way I look at it, BreadTalk is doing a fairly decent job on its margins - I realise there is quite some room to improve further but I believe BreadTalk is doing a better job on margin preservation and enhancement than most others in the Catering/Restaurant/Hospitality sector, certainly those listed on the SGX. In Q2 2012 Breadtalk converted S$ 104.8 Mln of revenue into S$ 3.54 Mln of NetPAT - about a 3.4% after tax margin ............. up from ~ 2.9% in Q2 2011.

BreadTalk's management is clearly focused on bringing down their unit costs - centralisation of food processing, culling of non-performing outlets etc. They also lever scale effectively, in my view.

I would be interested to know what data/numbers in BreadTalk's 1H 2012 results prompted your remark. Thanks again for your response Contrarian.

Vested, so I admit to a bias.

Got growth but no margin discipline...

[evilbdboi]

I sold off my BT after reading this article from motley fool.

http://www.fool.com/investing/general/20...stors.aspx

an extract:

Singapore's Breadtalk Group, has outperformed. But here's why we're happy with what we have: The aforementioned pressures on Yum! Brands, Chipotle, and Arcos Dorados will ultimately abate and their focus on opening and operating popular, profitable restaurants around the world will help them come through stronger on the other side.

Breadtalk, on the other hand, is rising likely because investors think it looks cheap, but management is showing itself to be dangerously unfocused -- the reason we sold it from our portfolio in the first place.

What diworsification looks like
Since Peter Lynch famously loathed companies that failed to master singular aspects of their business before moving on to other things, I suspect he would not have a favorable opinion of Breadtalk. This tiny organization, with just $330 million of sales, is trying to juggle seven different restaurant concepts (Breadtalk, Food Republic, Toast Box, RamenPlay, Din Tai Fung, The Icing Room, and Carl's Jr.), two different business models (franchising and owned/operated), and multiple geographic markets around the world.

Compare that to Chipotle, which waited until it had more than $1 billion of U.S. sales from owned/operated locations before it even experimented with new markets or a new concept.

Now think about the implications of those disparate strategies for each company's business. Chipotle's simple menu, singular concept, and relatively concentrated network of stores give it more bang for its marketing dollar, significant ingredient purchasing power, and loads of transferable managerial talent. These economies of scale, as business wonks would call them, are what help Chipotle deliver best-in-class operating profit margins of more than 15%.

Breadtalk, on the other hand, is just eking out an operating profit -- and that's not surprising. While a more efficient procurement process is reportedly going to be installed in 2013, think about the costs and headaches that must arise trying to source ingredients for burgers, dumplings, noodles, and baked goods. How much overhead must be associated with managing seven different marketing strategies and parallel networks of owned and franchised stores, not to mention capital management in a half-dozen or more currencies? Add in volatile food prices, the rising cost of shipping, and potential shortages looming for commodities such as pork, and it's only going to get more difficult for a small player like Breadtalk.

It gets worse
But this isn't even the worst part. No, the worst part, in my opinion, is the company's recent announcement of a $16 million real estate investment in Beijing. There's at least one thing wrong with this that makes it an enormous warning sign for Breadtalk investors: Breadtalk is not a real estate investment company.

But even if you believe Breadtalk has some competence analyzing and pricing real estate deals given the team it must have in place to find good restaurant locations, there are at least two more things wrong with this deal:

Given the economic slowdown in China, it's likely that real estate prices in China are significantly overvalued at present.
$16 million is almost one-third of the company cash balance -- cash that might otherwise be used to invest in restaurants, repurchase shares, or reward investors with a dividend.
This is distracting, questionable, unfocused capital allocation -- and a warning sign for investors. And why is Breadtalk making the investment? According to the release, "to build its presence in a major city where it operates its own stores in addition to benefiting from asset appreciation in the future."

[RBM]

I note that the Motley Fool piece was written on 8th October 2012. Interesting. Since then BreadTalk's share-price has risen a further 15% (fifteen percent) and daily volumes are way up. I wonder if the Motley Fool author and others who sold out in early Q4 are "still happy with what they have" - may be they invested their BreadTalk proceeds and earned > 15%???

I found the Motley Fool piece shallow and missing some rather fundamental issues - comparing examples from the US market with a player focused on certain markets in Asia. In the weeks preceeding the article a former substantial BreadTalk shareholder was disposing of his holding and this had held the share price back.

Vested - I too was not overjoyed by the Beijing real-estate investment but I'm not displeased with the share price performance in recent months. I'm of the view, perhaps incorrectly, that there is still upside to this one, particularly from margin growth.

I sold off my BT after reading this article from motley fool.

http://www.fool.com/investing/general/20...stors.aspx

an extract:

Singapore's Breadtalk Group, has outperformed. But here's why we're happy with what we have: The aforementioned pressures on Yum! Brands, Chipotle, and Arcos Dorados will ultimately abate and their focus on opening and operating popular, profitable restaurants around the world will help them come through stronger on the other side.

Breadtalk, on the other hand, is rising likely because investors think it looks cheap, but management is showing itself to be dangerously unfocused -- the reason we sold it from our portfolio in the first place.

What diworsification looks like
Since Peter Lynch famously loathed companies that failed to master singular aspects of their business before moving on to other things, I suspect he would not have a favorable opinion of Breadtalk. This tiny organization, with just $330 million of sales, is trying to juggle seven different restaurant concepts (Breadtalk, Food Republic, Toast Box, RamenPlay, Din Tai Fung, The Icing Room, and Carl's Jr.), two different business models (franchising and owned/operated), and multiple geographic markets around the world.

Compare that to Chipotle, which waited until it had more than $1 billion of U.S. sales from owned/operated locations before it even experimented with new markets or a new concept.

Now think about the implications of those disparate strategies for each company's business. Chipotle's simple menu, singular concept, and relatively concentrated network of stores give it more bang for its marketing dollar, significant ingredient purchasing power, and loads of transferable managerial talent. These economies of scale, as business wonks would call them, are what help Chipotle deliver best-in-class operating profit margins of more than 15%.

Breadtalk, on the other hand, is just eking out an operating profit -- and that's not surprising. While a more efficient procurement process is reportedly going to be installed in 2013, think about the costs and headaches that must arise trying to source ingredients for burgers, dumplings, noodles, and baked goods. How much overhead must be associated with managing seven different marketing strategies and parallel networks of owned and franchised stores, not to mention capital management in a half-dozen or more currencies? Add in volatile food prices, the rising cost of shipping, and potential shortages looming for commodities such as pork, and it's only going to get more difficult for a small player like Breadtalk.

It gets worse
But this isn't even the worst part. No, the worst part, in my opinion, is the company's recent announcement of a $16 million real estate investment in Beijing. There's at least one thing wrong with this that makes it an enormous warning sign for Breadtalk investors: Breadtalk is not a real estate investment company.

But even if you believe Breadtalk has some competence analyzing and pricing real estate deals given the team it must have in place to find good restaurant locations, there are at least two more things wrong with this deal:

Given the economic slowdown in China, it's likely that real estate prices in China are significantly overvalued at present.
$16 million is almost one-third of the company cash balance -- cash that might otherwise be used to invest in restaurants, repurchase shares, or reward investors with a dividend.
This is distracting, questionable, unfocused capital allocation -- and a warning sign for investors. And why is Breadtalk making the investment? According to the release, "to build its presence in a major city where it operates its own stores in addition to benefiting from asset appreciation in the future."

[felixleong]

diworsification, BT doesn't look good

[Ray168]

Today broke 2 years high at 73c or up 5.8%.
Primacy Investment Limited (SSH) is buying continuously.

Hi,

I think we should take another view to value BT. BT is a cash generating machine. Its Net Operating cashflow is improving year after year.

If we take 2011 Net Operating Cashflow $43 million and its total market value $193 million (11Jan2013 @ 0.685 / share), the ROI is 4.48X.

Isn't this attractive?

On TA wise, current price may be too high for entry.



Vested.

Thanks for your one-liner of this morning regarding BreadTalk's "margin discipline" Contrarian,

I have had a further look at BreadTalk's 1H 2012 financials. Whichever way I look at it, BreadTalk is doing a fairly decent job on its margins - I realise there is quite some room to improve further but I believe BreadTalk is doing a better job on margin preservation and enhancement than most others in the Catering/Restaurant/Hospitality sector, certainly those listed on the SGX. In Q2 2012 Breadtalk converted S$ 104.8 Mln of revenue into S$ 3.54 Mln of NetPAT - about a 3.4% after tax margin ............. up from ~ 2.9% in Q2 2011.

BreadTalk's management is clearly focused on bringing down their unit costs - centralisation of food processing, culling of non-performing outlets etc. They also lever scale effectively, in my view.

I would be interested to know what data/numbers in BreadTalk's 1H 2012 results prompted your remark. Thanks again for your response Contrarian.

Vested, so I admit to a bias.

Got growth but no margin discipline...

[Some-one]

A second Olam in the making? Too many businesses would throw the company off track.

(Not vested)

[evilbdboi]

Pains my heart to see the run up in price but still believe I did the right thing. Profit margin for BT is too low. Doing too many businesses may cause loss of focus.

[RBM]

The rise in BreadTalk's share price continued again today - breaking another 52-week high to end at S$ 0.765 per share - i.e. up 2% in a market which was declining overral. Today's volumes were also darned high - 934,000 BreadTalk shares were traded in the session.

My broker chum seems convinced there is serious stake building going on - but I don't see any recent announcements about new substantial shareholders.

Vested