February 25, 2018, 3:38 am
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PH firm hikes stake in US burger chain

Jollibee Foods Corp., said it has acquired an additional 45 percent in Smashburger. 

This will increase BGI’s ownership in the US burger chain to 85 percent. 

Jollibee said unit Bee Good! Inc. (BGI) purchased the additional shares of SJBF LLC, the parent company of the entities comprising the Smashburger business, from Smashburger Master LLC (Master).

 Master will retain the remaining 15 percent ownership. 

“The transaction, valued at $100 million is expected to be completed in one to two months, subject to government approvals in the United States and meeting certain closing conditions.  Jollibee will pay Master through BGI in cash,” the company said.

“With this acquisition of more shares,  Jollibee will have a more significant business in the United States. The US will increase its contribution to our worldwide system-wide sales from 5 percent to 15 percent. We will be able to participate in the very large mainstream American consumer market in addition to serving Filipino-Americans there,” said Tony Tan Caktiong, Jollibee chairman. 

“We believe that we will be able to profitably provide the mainstream American consumer with superior tasting products with excellent services at very good value for money as we have demonstrated in the Philippines, China, Vietnam, Singapore, Hong Kong, Brunei and the Middle East. The proportion of our foreign business to worldwide system wide sales will increase from present 20 percent to 30 percent. We will eventually achieve our goal of 50/50 revenue split between the Philippines and foreign businesses even as our Philippine business continues to expand strongly since our foreign business is growing even faster. It will only be a matter of time,” he added.

 The integration  of Smashburger into  Jollibee will increase worldwide store network by 365 stores or 9.6 percent to 4,162. 

This will also expand  Jollibee’s geographical presence from 16 countries to 21 adding Costa Rica, Egypt, El Salvador, United Kingdom (England and Scotland), and Panama.
 
“The consolidation of  Smashburger  into   Jollibee  will  increase   Jollibee’s  store network  in  the  US  by  five5-fold,  from  83  to  417 and will expand its presence to 39 states in the US from current 10 states. It will also increase  Jollibee’s  store  network  in  Canada, from two to 8,” said Emesto Tanmantiong, Jollibee chief executive officer.

Thomas Ryan,  one of the founders of the Smashburger brand and who has been its chief executive officer (CEO) for the past 15 months will continue to be its CEO.

,“ We will introduce at  Smashburger the  Jollibee Business Systems that have proven to work successfully in its brands in several countries,” Tanmantiong added.

 The financial data of the company in the past six months showed that Smashburger has an annualized system-wide sales of $333 million and net revenues of $200 million, and reports a positive and improving earnings before interest, taxes, depreciation and amortization.

Tanmantiong said one of  Jollibee’s priorities will be to change Smashburger’s debt structure, to significantly reduce its financing cost and enable the business to make more investments for long term growth. 

“It will focus on significantly growing sales per store and increasing profit which JFC has been able to achieve in practically all its acquired businesses in the Philippines and abroad,” he said.

 Smashburger with headquarters in Denver, Colorado is a leading fast casual restaurant. In addition to premium beef and turkey burgers, Smashburger offers grilled or crispy chicken sandwiches, black bean burgers, fresh salads, signature side items and hand-spun Haagen-Dazs shakes. 

The chain is recognized in various surveys and publications as one of the best tasting burgers in the US.
 
Meanwhile, broker Unicapital Securities Inc., said the increasing inflation in the Philippines could put a dent in Jollibee Foods Corp.’s sales growth. 

The broker said the hike in prices, recorded at an inflation rate of 4 percent in January, will raise cost of goods faster that the domestic sales. 

“As Philippine inflation rose to new levels last year (2017 inflation averaged at 3.2 percent vs. 2016’s 1.8 percent and 2015’s 1.4 percent), we think that 2018 will be an adjustment period for consumers once Jollibee raises its selling prices accordingly,” it said. 

“Jollibee’s revenues tend to slow down when inflation surges and to accelerate when inflation cools down or when it stabilizes,” it added.

In Jollibee’s third quarter result report last year, the company reported that domestic sales account for 78 percent of its P42.3 billion system-wide sales. 

Jollibee reported that revenue for the period reached P32.7 billion, up 17.5 percent, out of the system-wide sales that grew 16.5 percent P33.1 billion.

Unicapital noted that Jollibee’s current price is already above its five-year historical average and is currently trading at a 2018E P/E of 38.7x, “higher than its five-year average of 35.5x.”

“If it trades at 1 standard deviation above its average, the stock price could overshoot to P301.00/share. If it trades at 2 standard deviation above, it could overshoot to P339.00/share,” it said. 

“We think that the stock price already caught up with the company’s intrinsic value. Any upside at current levels will be driven by sentiment and anticipation of SuperFoods’ IPO,” it added.

Jollibee closed Tuesday’s trading down P6 to P277.
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