When Spur Corp released results for the year ended June 30 on August 21, the market showed its appreciation. The share price jumped from R33 to R38, a delightful 15% rally.
At the time of writing, it had fallen to R35 in the aftermath of negative news about the legal dispute with GPS Food Group. Spur is in an arbitration process related to two claims — and the arbitrator found in favour of GPS in the first to be heard, for between R119.9m and R167m. The quantum of damages hasn’t been finalised and this creates an overhang on the Spur share price, as this amount is material in the context of a R3.2bn market cap.
Predicting (or gambling on) the outcome of a legal process is a fool’s errand. Instead, we can look at the underlying Spur results to see if the initial market response was rational.
At first blush, it looks like the exuberance was justified, with revenue up 11.2% and operating profit up 20.5%. Spur achieved this through gross margin expansion and decent cost control — a high-quality outcome.
The numbers were achieved by a footprint of 724 restaurants, of which 105 are international. Of the 619 restaurants in South Africa, more than half (316) are Spur Steak Ranches, with Panarottis and RocoMamas rounding out the top three. The recently acquired Doppio Zero business has 31 restaurants, which puts it above Hussar Grill (26 restaurants) in the pecking order.
The franchise model and the sheer joy of “other people’s money” to drive growth (franchise owners paying for stores) means Spur’s footprint is capable of rapid growth. This is how Panarottis achieved 13.6% growth in system-wide sales, vastly higher than like-for-like growth of 2.9%. In my opinion, the best metric is like-for-like sales, as it gives us a view on how well the underlying brands are resonating with consumers.
The key is, of course, Spur itself, given the size of its relative contribution to the group. The good news is that the hot wings and cold beers are working, as are the impressive play areas for families looking for a trusted solution to entertain and feed their children. Like-for-like sales increased 3.2%, which is above the group average of 2.5%.
RocoMamas came out tops with like-for-like growth of 3.6%, while Panarottis managed 2.9%. John Dory’s is the concern (probably not a surprise — it does feel like the ugly duckling), with sales down a nasty 7% on a like-for-like basis.
Aside from the core brands, Spur is experimenting with a variety of virtual kitchen offerings that tap into delivery platforms such as Uber Eats and Mr D
Regionally, 58% of turnover is from Gauteng and 22% is in the Western Cape. It might surprise you that growth in Gauteng of 9% is only slightly behind the Western Cape at 10%. There’s a lot of focus right now on the Western Cape as an investment destination, but there are still plenty of consumers in Gauteng.
It just wouldn’t be a 2025 results release without some mention of AI and data. Spur has had a loyalty card for as long as I can remember (Monday burger nights were a firm favourite of mine as a student), with 38% of “Champions” status members having children. My primary question relates to the other 62% and how Spur is getting them to spend so much time in the restaurants.
My other question relates to how it plans to really leverage this data when most customers want a sit-down rather than digital solution. Spur is at least taking steps to address the convenience market and build a business beyond a destination dining option. Aside from the core brands, Spur is experimenting with a variety of virtual kitchen offerings that tap into delivery platforms such as Uber Eats and Mr D.
We know from the retail sector that South African consumers are among the most price sensitive in the world. This does seem to carry through into the restaurants, with value offerings at all the major brands including Hussar Grill. It’s all relative, of course, (a special at Hussar Grill still costs a lot more than a meal at Panarottis), but it shows that consumers in all income bands are always looking for a good deal. With roughly half the group’s activity coming from lunchtime customers, those lunch specials make all the difference.
Overall, the group is clearly doing well, yet the share price is trading on a p:e of 10.4 (not demanding) and a juicy dividend yield of 8.5%. Sure, there’s an overhang here from the legal dispute, but this looks like a solid opportunity as we head towards what will hopefully be further decreases in interest rates.
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