Cooks Global Foods (CGF) has reported a net loss excluding impairment charges of NZ$1.556m for H116, a 31.7% increase year-on-year. The company is very much in the investment phase of scaling up its operations offshore and has set in place the parameters to fund its growth plan for the next few years. Our DCF-valuation of NZ$0.245 per share post-transaction is based on the company successfully rolling out 710 stores by FY21.
CGF’s business plan is to significantly grow its Esquires Coffee House franchise business from the current 85 stores into a major international brand across Europe, the Middle East, Asia and North America. The company expects to have 710 stores (all franchised) by FY21, from which it will earn royalties paid by franchisees, revenue from the sale of master franchises and sales from coffee and other products to the franchises. To fund this roll-out, the company has secured approval from its shareholders to allow a NZ$9.0m capital injection by interests associated with the chairman Keith Jackson and a key Chinese partner Jiajiayue Group, and this transaction is expected to complete shortly. Shareholders have also approved a NZ$9.0m capital raise, likely to be in the form of a public share offer in 2016.
The company reported an H116 net loss excluding impairment charges of NZ$1.556m, an increase of 31.7% y-o-y, on the back of a 4.1% y-o-y increase in sales to NZ$4.513m. Gross margin for the period increased to 70.4% from 69.9% previously, demonstrating the benefit of updating its UK stores and increased product sales to the stores in the group. Recurring revenue as a proportion of total revenue expanded to 82% for the period from 77.5% y-o-y.
Our DCF valuation (post-transaction) is NZ$0.245/share, 88% above the current share price. The valuation is based on a WACC of 10.7% and a terminal growth rate of 2.0%. It is also predicated on CGF achieving its goal of rolling out 710 stores by FY21. In the near term, the share price may experience headwinds as the company completes the NZ$9.0m capital raise approved by shareholders and slated for 2016.