It is the return of the prodigy as BreadTalk’s founder, George Quek, is reclaiming his throne – “Singapore Foodcourt King”. Since my last article on BreadTalk share price, this counter took on a life of its own when the bread company made headline news for splashing out $80 million for the acquisition of Food Junction. Many analysts balked at the price tag and there were plenty of critics claiming that BreadTalk had overpaid for a project that earned net profit of merely $3183.
On the contrary, I rate the acquisition positively despite the short-term harm it may cause to BreadTalk share price. In my view, the naysayers could be missing the forest for the trees. Many readers are not going to agree with my analysis but I do think that context is important here and one should not jump the gun just by looking at financial figures. You need to analysis the situation at big picture level when it comes to stock investing.
The acquisition of Food Junction came at a time when CEO Henry Chu resigned due to personal and health reasons. Whether there is a power struggle behind the scene is subject to debate. But to be honest, Henry Chu’s pending departure (he will leave at end of the year) is unlikely to hit BreadTalk share price in the near future. This is because founder, George Quek, is taking over as the interim CEO. As a successful entrepreneur with a long history of track record in the F&B industry, I am 200% convinced that BreadTalk share price will recover in due time.
When NTUC Enterprise acquired Kopitiam in December 2018, it was a harbinger of things to come. Effectively, NTUC Foodfare became the largest food courts player with Kopitiam chain of outlets under its arm. With the ignition of the battle caused by NTUC Enterprise, George Quek was actually forced to act. In this article, I will share my view on whether George Quek has really lost the plot with the acquisition of Food Junction and how this acquisition may impact BreadTalk share price.
BreadTalk share price sink or swim with Food Junction?
Before George Quek found success with BreadTalk, he was well-known for co-founding Food Junction in the early 1990s. From the first outlet at Junction 8 mall, he and his partners grew Food Junction to a chain with 14 food courts, earning George the title of “Singapore Foodcourt King”. Subsequently, George left to found BreadTalk and resigned as director of Food Junction, presumably to prevent conflict of interest (BreadTalk also owns a chain of food courts in Food Republic).
While BreadTalk’s core business is in bakery, the Bakery Division is not doing well in recent years due to stiff competition. The earnings before interest, tax, depreciation and amortisation (EBITDA) for FY2018 from Bakery Division was $22.6 million, a 1.8% decline year-on-year. On the other hand, Food Atrium Division raked in EBITDA of $31.2 million. Part of the reason that the food courts business is doing so well is because of the higher profit margin as compared to the bakery business. Thus, the management must be concentrating its firepower in the food courts business in a bid to revive BreadTalk share price.
Many analysts pointed out that the net asset value (NAV) of Food Junction is only $12.34 million. Thus, effectively BreadTalk is paying 6.5 times the book value of Food Junction. However, critics failed to see that this acquisition will [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]
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