Spur is nearly back to pre-pandemic levels

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Spur is nearly back to pre-pandemic levels

Spur (JO: SURJ ) has released a sales update and trading statement for the six months to December 2021. This period includes the civil unrest, which obviously impacted operations, along with a general prohibition on sit-down trade in July 2021. On top of that, Spur has taken a R22 million charge on the income statement related to a tax dispute with SARS.

The unrest impacted franchised restaurant turnover by R14.6 million in July. Nine of the franchised restaurants were looted and vandalised, with damages of R29.5 million in total. These are franchisees and so they are essentially small businesses that were destroyed, even though they have the Spur name on the door.

It's hard to have a taste for life under these circumstances, but the group has shown resilience in the face of numerous challenges.

In positive news, trade improved significantly towards the end of 2021. Franchised sales over the six months were 28.3% higher than the comparable period in 2020 and 18% higher than the first half of 2021. Both those comparable periods were impacted by Covid-related restrictions.

Things are looking up for the restaurant industry these days, but sales are still tracking 9.5% below pre-Covid levels, so a full recovery hasn't been achieved yet. Spur had to dig deep to provide support to franchisees in the form of discounted franchise and marketing fees in July 2021, which impacted revenue and profit for the listed company.

Unsurprisingly, the biggest year-on-year improvement was in the "speciality brands" which includes upmarket restaurants like The Hussar Grill. Restrictions on restaurant trade obviously hit these businesses the hardest. You might order takeaway burgers from Spur or wings from RocoMamas, but you probably don't get takeaways from your local Hussar.

Diluted headline earnings per share (HEPS) is expected to be between 69.18 and 70.77 cents for this period, up between 117% and 122% vs. the comparable period. With various once-offs excluded, the group notes that comparable HEPS is 106% - 111% higher.

A quick look on TIKR suggests that Spur's average Price/Earnings multiple over the decade before the pandemic was around 18.5x. With a share price of around R22.70 and based on this result, the annualised Price/Earnings multiple is just over 16x. An annualised multiple assumes that the interim performance will be repeated in the second half. One would expect the annualised multiple to be lower than the trailing multiple (based on the last 12 months of profits) when a company is growing.

The point I make is that Spur has recovered much of its valuation since the start of Covid, with the share price at a discount to pre-Covid levels that is largely in line with the remaining sales gap vs. that period. The market is no longer wondering about whether the restaurant industry will be ok. Instead, it is pricing these companies based on the current level of earnings.

Spur's share price is flat over the past three years. This has been a tough industry in South Africa, even for a group like Spur.

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