Cooks Global Foods (CGF) has reaffirmed its 650-store budget for Esquires Coffee by March 2021, but has acknowledged that the growth path may not be smooth. The company needs to obtain additional funding to fuel this growth and in the short term has arranged a NZ$2m convertible loan facility from two of its largest shareholders. CGF also has shareholder approval to raise NZ$9m, and we understand the company is in discussions with strategic investors. The company’s auditor, PricewaterhouseCoopers, has issued a disclaimer of opinion on CGF’s going concern status. Our forecasts and valuation are predicated on management’s budgets for store openings and sales, and the assumption that the company will secure the required funding.
Cooks Global Foods has restated its 2016 results and comparatives, following completion of its audited accounts and the release of its annual report. The company reported an underlying net loss of NZ$4.9m after one-off costs of NZ$3.0m (including impairment of intangibles of NZ$0.5m, restructuring costs of NZ$1.36m, acquisition and capital costs of NZ$0.4m and share-based payments of NZ$0.7m). The underlying EBITDA loss was NZ$4.16m. The statutory net loss was NZ$7.96m (previously reported by the company as a NZ$7.2m loss). A large part of the restructuring costs and share-based payments was attributable to the exit of the largest shareholder in November 2015. This restructuring, while strengthening the share register, has delayed both the company’s roll-out and capital raising plans
Cooks Global Foods has reaffirmed its budget for 650 stores and internal target for 800 stores by 2021. This includes a budget for 220 stores and target for 300 stores in China. Our forecasts are slightly lower than the company’s budgeted store rollout and expected sales. We have adjusted our FY17 and FY18 forecasts to reflect the lower than target roll-out achieved in FY16 (actual of 87 vs a target of 120) and this has resulted in a downgrade to our earnings forecasts in both FY17 and FY18.
Given the early stage in its lifecycle, we use a DCF valuation methodology to value CGF. We have increased our discount rate to 12% for risk (previously 10.7%) and this, together with our near-term earnings adjustments, has reduced our DCF valuation to NZ$0.145/share (previously NZ$0.245). Our valuation is predicated on the company rolling out 629 stores by the end of FY21. At 2.1x EV/revenue, CGF is trading at a 44% discount to the median multiple of its global listed peer group.