[Year] April 2017 - Consumo Publishersconsumo.co.za/.../uploads/2016/06/Consumo-Newsletter-April-2017.pdfnone other than Mr Elvis ... And how things have gone wrong for the South African

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[email protected] www.consumo.co.za @consumopub

April 2017

Dear Business Studies Teacher

We start our April newsletter with a quote from one of the SUPER heroes of the previous century -

none other than Mr Elvis Presley. He once said: ―When things go wrong, don’t go with them!‖

And how things have gone wrong for the South African economy during the first half of April 2017

with the down grading to Junk Status. This brings a lot of uncertainty: what will happen with

interest rates, the exchange rate and subsequent prices of imported goods, and what about the

inflation rate, to name but a few current affair issues. But the one thing that you don’t have to feel

uncertain about, is that Consumo resources will always maintain an AAA-grading. Our books are

written according to the requirements of the IEB-Assessment syllabus and updated on a regular

basis. We also make sure that we add new articles or clips to our website at least once a month.

Because not doing so, sounds like Junk resources to us …

Talking about junk, our April joke:

https://za.pinterest.com/jettedaugaard/low-carb-humor-with-all-the-fat-you-need-/ downloaded on 19 April 2017

mailto:[email protected]


http://www.consumo.co.za/


https://za.pinterest.com/jettedaugaard/low-carb-humor-with-all-the-fat-you-need-/

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April 2017

In line with our first part of the newsletter that traditionally focuses on Critical thinking, we are

bringing you an activity to try in your class. Refer to the attachment called ―Strategies activity‖.

And now, for some info on the

In April we focus on some interesting statistics about the Quick Service Industry in South Africa –

curtsey of research undertaken by Analytix Business Intelligence:





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And two interesting recent articles concerning developments on the international scene:

Burger King pays off for Grand Parade

Gradual improvement in profitability, cautious rollout and management, and good prospects brighten Grand Parade

Investments outlook

0 5 A P R I L 2 0 1 7 - 1 2 : 5 0 P M

Picture: BLOOMBERG/ PAUL HACKETT

The share price of empowerment counter Grand Parade

Investments (GPI) had, at the time of writing, risen

about 10% since the recent release of interim results to

end-December.

The spurt might be attributed not only to GPI’s

concerted effort to present a clear break-down on

intrinsic net asset value (NAV), but also to the fact that

the key investment in fast-food brand Burger King is

slowly turning profitable and, perhaps more importantly, that the company has started buying back its own shares in

meaningful tranches.

In the interim period GPI bought back 24.5m of its own shares for R89.4m (at an average price of R3.65/share), and

then bought back another 8.9m shares for R32m (at an average price of R3.55/share) after the close of the interim

accounts.





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April 2017

The share buyback looks like a no-brainer, considering GPI states an intrinsic NAV of 682c/share on its investments.

Aside from Burger King, these include a 12% stake in restaurant franchiser Spur Corp and catering business Mac

Brothers, as well as a significant minority stake in the GrandWest and Worcester casinos — plus a 30% stake in

limited payout machine (LPM) operator GPI Slots.

The company’s investment presentation does a great job of unpacking the intrinsic NAV, which is incredibly helpful, as

only Spur is listed on the JSE.

Interestingly, the 15% stake in SunWest International, which operates the cash-spinning GrandWest casino in Cape

Town, remains GPI’s largest investment. The value is estimated at R875m — equivalent to 199c/share or about 29%

of the intrinsic NAV.

Using a discounted cash flow method, GPI values its 91.1% stake in the 70-outlet Burger

King at R660m (equivalent to about 150c/share or 23% of intrinsic NAV).

Combining the intrinsic values of the controlling stake in Burger King with the minority stake

in SunWest with the net cash holdings of R300m (68c/share) would give an intrinsic value of

about 417c/share.

At the ruling share price, this means a discount on the two main assets and the cash pile, and it offers investors free

access to the more than R600m investment in the highly profitable LPM operations, the R135m holding in Spur, the

promising Mac Brothers (worth R117m), Grand Foods Meat Plant (R63m) and properties worth R268m. Then there is

the 15% stake in the Worcester casino (R25m), as well as the fledgling specialist eateries Dunkin’ Donuts (R11m) and

Baskin-Robbins (R5m) that can’t be entirely ignored.

A discount of close to 45% seems extremely dismissive of GPI’s prospects — specifically its ability to generate

succulent returns from Burger King. In essence, the market appears to be pencilling in the eventual sale of the

remaining gaming assets, these combined values effectively adding up to more than 340c/share.

So, put another way, the market is valuing the Spur minority stake, Burger King, the food service/catering assets and

the properties at just 50c/share.





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That simply can’t be right — unless punters are taking the most jaundiced view of SA’s fast-food and convenience

restaurant sectors.

Despite a slower than expected rollout of stores, it’s getting increasingly difficult to make dire pronouncements on

Burger King. With its rollout slowed down, GPI has been meticulous about preserving margins, and in the interim

period only three corporate-owned restaurants and one franchised restaurant opened. Two corporate restaurants

were closed after poor performances, which underlines GPI’s insistence on securing acceptable returns at store level.

The interim period saw Burger King post R5.6m at a company earnings before interest, tax, depreciation and

amortisation (Ebitda) level before one-off closure costs. This is an encouraging swing from the R13.4m loss in the

corresponding interim period last year.

Most heartening is that interim sales from Burger King’s corporate restaurants were up more than 40%, to R318m, on

the back of an 11% improvement in the average monthly restaurant sales and an increase in store numbers. GPI

believes Burger King should be self-funding from the 2018 financial year, with the internal rate of return hurdle set at

20% per restaurant.

Dunkin’ Donuts (five stores) and Baskin-Robbins (two stores) have not generated as much of a stir as Burger King.

But early indications are that the launch of both brands in the Western Cape went well and that early sales were

beating targets.

However, the market focus will still be mainly on Burger King, which has 18 sites ready for rollout this year. It seems

one key strategic tweak will be a focus on "drive-thru" outlets, and 14 of the next 18 Burger King openings will be in

this convenient format.

The other key indicator to monitor this financial year is how much the Ebitda margin is fattened. In financial 2016 the

margin increased to 13.38% from 10.42%, and there must be considerable scope to beef this up further.

Another point of intrigue will be whether GPI uses its balance sheet to acquire more Spur shares in the open market.

Gut feel is that the more influential GPI becomes as a shareholder at Spur, the more likely that there will be an

appetite for merging all or parts of GPI’s food assets into Spur in exchange for additional scrip.

There is a lot on GPI’s plate for the medium term, but the Financial Mail reckons the stock is low-risk fare for long-term

investors not wanting to suffer indigestion from growth prospects that are too rich.

https://www.businesslive.co.za/fm/money-and-investing/2017-03-30-gpi-burger-king-may-hold-key/ Downloaded 5

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https://www.businesslive.co.za/fm/money-and-investing/2017-03-30-gpi-burger-king-may-hold-key/

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How Parmalat conquered the township takeaway market

Jan 08 2016 07:30 - GG Alcock

To enter and be successful in marketing and selling products to [these] invisible markets the trick is to minimise the

risk of investment through knowledge and information.

Sadly, there are no research documents from esteemed universities or surveys by market researchers, so business

people need to do this the old-fashioned way – grab a taxi, shay’iround (visiting places), get their shoes dirty treading

the dusty streets of ekasi and emalalini (villages) or maybe paddle down the Tugela to talk to dagga growers.

It is with the dagga lesson in mind that I approach the launch of Parmalat Individually Wrapped Cheese Slices first in

the Soweto market and later throughout Southern Africa.

This is a premium product, a slice of processed cheese wrapped in a plastic sleeve, and not the kind of product one

would expect would gain any traction in the lower end retail sector, let alone in the informal spaza sector. Who could

imagine that we could create an entire product category now worth approximately R1bn in South Africa?

Launching this improbable product into the township takeaway market allowed Parmalat to generate hundreds of

millions of rand in sales in an invisible market, a market which is now hotly contested by all the dairy industry players

in the business. Today it seems as if everyone is falling over themselves to get their cheese slice into a kota or a

vetkoek.

John Dube (not his real name) has a tiny shack shop with a metre square hole in the wall in Orlando East, a suburb

close to Vilakazi Street in Orlando West, Soweto. Vilakazi Street was home to Nelson Mandela and Desmond Tutu,

both Nobel Peace Prize winners and neighbours in this famous street.

John has just bought a beautiful Jeep Grand Cherokee.

―Nice car,‖ I comment.

―Thanks,‖ he says. ―I am so happy to have it but, yo, I struggled to get it.‖

―Ja, they are expensive.‖ I imagine him saving forever for his dream car.

―No, not the price. I had over R500 000 with me when I went to Jeep, but they wouldn’t take my money. Some Fica or

such-such thing, they asked me to fill in a form saying where I got my money. Ja, so I filled in the form and where it

asked where did the money come from, I filled in amaKota. So the salesman says, what’s a kota, looking at me like it’s

a drug. I explain, and he shakes his head. I call the black guy washing the Jeeps. Tshela umlungu wakho, what is

a kota?‖ Tell your white man what is a kota.





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The kota is a hollowed out quarter loaf of bread, hence the name, filled with different ingredients, slap chips, polony

slices, fried egg, atchar, tomato sauce. This is the burger of the Gauteng townships where there is a kota outlet on

practically every street, school yard and taxi rank.

―And this white man says, suka, go away, you can’t make this money from selling these kota thingies. So I had to ask

my friend who has a business in town to pay for the Jeep and I paid him. Hayi, you white people, so ignorant of the

township!‖

The kota, this township burger, is so popular that John’s little outlet on its own has 600 loaves of unsliced bread

delivered each day to be cut into 2 400 kotas. His staff peel 80 bags of potatoes to make the slap chips. Yep, 80 bags

of potatoes a day, six days a week. That’s ?2 400 kotas a day at one outlet making a profit of around R12 000 a day

for the owner. And there are kota outlets everywhere, even if they are not as big as John’s.

Do the maths.

It’s massive and seemingly invisible, yet it’s not invisible, it’s there when you know what to look for in the informal

sector.The cheese slices alone which go into this sector are conservatively estimated to be worth R400m a year in

sales.

http://www.fin24.com/Finweek/Business-and-economy/how-parmalat-conquered-the-township-takeaway-market-

20160107 Downloaded 5 April 2017





http://www.fin24.com/Finweek/Business-and-economy/how-parmalat-conquered-the-township-takeaway-market-20160107

http://www.fin24.com/Finweek/Business-and-economy/how-parmalat-conquered-the-township-takeaway-market-20160107

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Remember that all our books are available in English and

Afrikaans. Books are also available in electronic format on

ITSchools and Snapplify or in hard copy.

Our teacher’s guides are also available FREE of charge on

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If there are any suggestions you may have for us to make our newsletters more useful, please do

not hesitate to contact us.

Best wishes

Estie and Zain

The Consumo Team

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[Year] April 2017 - Consumo Publishersconsumo.co.za/.../uploads/2016/06/Consumo-Newsletter-April-2017.pdfnone other than Mr Elvis ... And how things have gone wrong for the South African