Taste for the Good Things in Life

Nov. 22, 2011 - PRLog -- The Bureau for Economic Research (BER) said this week that a return to a slightly positive GDP growth in South Africa is expected from the third quarter. The economy, however, is forecast to contract by 2% this year, with fairly muted growth of 2.7% projected for next year. Recent SA inflation trends have been more positive, with the CPI inflation falling sharply in June to 6.9% from 8% in May. It would take more than just one month's good consumer price index (CPI) number for the bank to decide that further interest rate cuts were justified. A continued moderation in headline inflation is expected as consumer food prices catch up to the sharp easing of agricultural and manufactured food prices. The strength of the Rand and the recent fall in the oil price back towards $60/barrel, if sustained, also bodes well for domestic fuel prices and the consumer. In light of recent double-digit wage settlements in a number of sectors and indications that the worst of the domestic recession may have passed, many people are of the opinion that there will not be any further interest rate reductions. By September or October it will become clear that economic growth is not as strong as people hoped, and by then the inflation outlook will also have improved more. However, there still remain concerns, especially due to the potential for further sharp job losses and the prospects for SA consumer spending. Low interest rates are putting some money back in consumers pockets and one of the sectors that they could spend it on is in the quick service and casual dining industry.

One little quick service and casual dining company that is undervalued is Alt-x listed Taste Holdings (TAS). Taste is the holding company for the Scooter’s Pizza and MAXI’S fast food brands, as well as jewellery chain, NWJ Holdings. The group reported a decent set of results for the year ended February 2009. It has good margins and traditionally strong cash generation. Trading on a rolling PE ratio of 4 times the group's valuation does look appealing. The main difference between Taste and its peers is its high gearing, the fact that they do not pay a dividend and its shorter track record. We are cautious of the fact that the group ventured into a different industry such as jewellery during times of economic uncertainty. This together with the group's relatively heavy gearing leads us to recommend the share only to more speculative investors.

# # #

The PSG Online trading system gives you access to a variety of financial instruments from a single login. You will be able to access all your trades, investments and insurance. Our intuitive online share trading system provides you with direct market access, live prices and can automatically execute on your parameters for buying and selling shares as well as alerting you to new opportunities that match your trading strategy.

For further information http://www.psgonline.co.za