Simon Brown's stock tips: 24 March - 31 March

Astral Foods

In time, the rains we’re seeing will end the drought, but we still have a tough series of results to go through and the Astral trading update shows just that.

They’re expecting a 20%-30% decline in headline earnings per share (HEPS), citing increased maize costs and a weaker rand that hurt as maize had to be imported. In addition, consumers are under pressure.

The drop in HEPS raises the issue of the dividend. Astral paid a dividend of 575c a share following its two previous results announcements, but I can’t see the company continuing that level of dividend payout.

Astral will always be cyclical and the market seems to have largely priced this expected drop in HEPS into the share price, as it trades on a historic price/earnings ratio (P/E) of well under 10 times. Cheap, but for a reason.

Grand Parade Investments

The Grand Parade results show that Burger King is settling in very well albeit in a very tough environment and is on track to achieve the revised goal of 80 outlets by year-end.

While the company is looking to exit some of its gaming assets, right now those assets are funding the growth. More importantly, those assets are enabling a profit while we wait for the new quick-service operations to kick in.

That said, I am not convinced by the Dunkin' Donuts and Baskin-Robbins brands. The former is huge in the US but I am not sure South Africans are going to take to it in the number required to really make a significant contribution to profits going forward.

Bottom line, I think that aside from Burger King, the other brands are at best second-tier brands, and Grand Parade needs more top-tier brands to really drive growth and profits.

Second-tier brands are fine if you have a large portfolio, but with such a small range of brands I think the overall strategy is going to struggle.

ELB Group

ELB Group saw interim revenue down 20% while HEPS dropped 138% to a loss of 51c.

The weaker rand and weak commodity prices (they work in this space) are hurting them, but they do have a trick up their sleeve with a cash pile of R335m.

This meant they were still able to pay a dividend of 30c a share, keeping it the same as the corresponding period.

The big story of course is that the market cap of this stock is some R650m, meaning more than half the value of the company is in hard cash.

This cash pile has been declining, as has the share price, which is off more than 50% from the late 2014 highs.

Again the question is: what will rate the share higher? That will require an improvement in commodity prices, but for now the share price has likely hit a floor thanks to the underpinning of cash.

Anchor Group

Anchor Group’s results came in slightly better than I had expected with HEPS up 83% at 55.1c for the full year; I had expected 50c. This puts the stocks on a P/E of 27 times.

With assets under management (AUM) of just over R40bn, they’ve surely hit critical mass and can start generating even more profits.

A substantial portion of the profits in the 55.1c HEPS for this year were contributed by acquisitions that occurred during the year.

I don’t think they’ll be able to do the 83% HEPS growth again, but certainly another sterling set of results should be expected for the current financial year.

They should be able to do a 60% increase in HEPS with ease, putting them on a forward P/E of some 19 times. This is still not expensive considering the group’s potential.