A portfolio clean-up at Grand Parade Investments (GPI) appears to be paying off. The group posted a profit of R38m for the year to end-June, compared to a loss of R48m the previous year.
The reversal in GPI's fortunes is on the back of its Burger King franchise, which had sales surging 34% to R1.015bn.
These were helped by 10 new restaurants for a total of 92 in SA. It shut down four unprofitable stores, and managed menu pricing helped increase foot traffic.
"The portfolio clean-up has helped management focus. While the decision to cut a loss-making operation is always tough, it does allow focus and clarity on the path forward," said Reuben Beelders, portfolio manager at Gryphon Asset Management.
The company said: "The business has finally achieved both scale and profitability, and is well positioned for growth over the medium term.
"The value in GPI lies in capitalising on the growth potential in Burger King and unlocking value for all stakeholders."
Beelders said its leadership had done well to take costs out of the business. "Should the disposals subsequent to year-end proceed as planned, the balance sheet could be relatively debt free."
GPI's portfolio is made up of food, manufacturing and gaming. It established itself as an investment company with expertise in gaming and later ventured into food when it acquired the hamburger chain in 2013.
The move was met with scepticism by shareholders, who questioned the firm's exposure in fast food, which was viewed as unfamiliar territory.
The gaming and casino company closed its Dunkin' and Baskin-Robbins businesses in February after year-on-year losses continued to weigh on the company.
It also sold back its 10% Spur stake to the South African steakhouse company.
Lester Davids, a trading desk analyst at Unum Capital, said: "I think that the narrowing of the focus definitely helps management focus their energy on a core asset or one asset that really has the potential to make inroads and make profits for the long term."
Disgruntled investors not only questioned GPI's food portfolio but its leadership as well. That led to founder and former chair Hassen Adams stepping down in May and the appointment of Mohsin Tajbhai as CEO in July.
Davids said the management changes that were implemented were starting to show in the company's operational results and in the turnaround of the business. "Perhaps on that basis, there could be a further value unlock in terms of what we're starting to see in the bottom line, the top line, as well as future operating margins and growth within the core assets that they've started to focus on," he said.
Retail sales for July eased to an underwhelming 2%, adding to the current weak economic fundamentals that place a cap on the growth prospects of consumer related stocks, said Davids.
GPI's share price has lost 23% of its value since it bought Burger King in 2013.
In a tough consumer environment, the stock doesn't offer much value, Beelders said. The share closed 1.8% lower at R2.80 on Friday.
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