Famous Brands (FBR) and Taste Holdings (TAS) both came out with trading statement yesterday.
Firstly, Famous Brands announced to the market that it expects its H1:13 HEPS and EPS to rise by between 18% and 22%. Diluted EPS and Diluted HEPS is expected to rise by between 19% and 23%.
This puts Famous Brands on a fairly large forward PE of 24.1x.
That said, though, this update is better than I expected.
During the H1:13 period, Famous Brands has only made one acquisition that I am aware of (60% of Java Lava Beverages, for its coffee sales into the Group's supply chain as part of the Group's backwards integration). Not only was Java Lava a small acquisition (c.R7m), but it was concluded in June 2012 and, thus, it will add minimally to the Group's H1:13 results.
In other words, Famous Brands trading update is built off what is likely to a high quality earnings growth (mostly to entirely organic). This is a very positive thing and the market reflected such when it traded the stock flat for the day, because at a 26x PE the risk of disappointment in Famous Brand's trading update was high.
Then, not to be outdone, Taste Holdings (TAS) released its own trading update for H1:13 indicating that EPS and HEPS are expected to rise by between 40% and 55%.
This is likely driven mostly by the Group's own backwards integration (i.e. the "kitchen and logistics" arm of the Group) and once-offs costs in the Group's FY 12 numbers that create an artificially low base for comparison.
The market traded Taste shares up 11% yesterday, albeit on typically light volumes, so the trading update was a bit better than expected. The share is now trading on a forward PE of c.22.0x, which is really not a huge discount against Famous Brands' own rating in the market.
Unfortunately, the dark cloud of the dispute over Fish & Chip Co. remains over Taste...
Now Spur (SUR) did not release any trading statement yesterday, but they did release results for the year ended June 2012 a little while ago.
How did they do?
Spur saw its FY 12 revenues rise 24.8% and HEPS grow 31.3%.
More comparable to the above trading statements of FBR and TAS, Spur's H2:12 revenues grew 33.5% and its H2:12 HEPS rose 46%. The SUR share currently trades on a PE of 16.8x, but its higher dividend cover and payouts seem to indicate a business that is not reinvesting into itself as much as FBR and TAS and one can perhaps assume a lower terminal growth rate that demands this lower rating in the market.
Now Spur's previous set of results included some once-off's, so some of bottom line growth rates are artificially inflated.
It is interesting to see how all these branded, backwardly integrating, franchisor fast food businesses (and one, Taste, with a dash of ex-growth jewelry!) are all trading fairly in line with each other. The market also appears quite fair (from a relative sense only) with these business's valuations.
Still, though, Famous Brands is 3x times bigger than Spur and almost 14x times bigger than Taste... So, if all these businesses are relatively equivalent and all their ratings appears fair against each other, I would much rather be in the biggest, safest one: Famous Brands.
So, in conclusion, my opinion remains unchanged. I still think this is a sector you want to be in and, if you want to be in it, then I still think the best quality stock is Famous Brands, hence I am holding fast onto my FBR shares. Perhaps, though, it might be worth investing in Spur shares in the event of a localised sell-off of that script. As much as I like the management, Taste, though, appears dangerous and illiquid at these levels.