Six insights from Spur – Moneyweb

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Welcome to the Supernatural Stocks podcast on Moneyweb, with your host The Finance Ghost – your weekly fix of local and international insights for investors and traders.

If you use the excellent Moneyweb tools and look at the Spur share price, then you’ll see that the total return over three years is 112%. That’s a monumental outcome, particularly in the context of South Africa’s growth over that period.

The world is very worried right now about the birth rate, but that doesn’t seem to be affecting Spur’s numbers.

This is more than just a playpark that also offers decent burgers. Oh yes, and excellent waffles. The waffles really are great. The last time I went to Milky Lane, it was pretty awful compared to Spur.

Milky Lane is part of Famous Brands, so perhaps the waffles are an indication of the broader story. Because over three years, your total return in Famous Brands is 2.4%.

I’m going to say that again: 112% vs 2.4%.

I feel compelled to include the decimal place in the Famous Brands number, as 40 basis points is sadly a material number in that context!

In the latest interim period, Spur grew comparable profit before tax by 11.7%. This is where they split out a number of important once-offs, as well as costs related to corporate actions.

This is probably the purest view on profit – and what a view it is! Growing profits in a consumer business in South Africa at roughly four times the inflation rate is a serious achievement.

With headline earnings per share [Heps] for the interim period at 204 cents per share, it’s tempting to annualise this and work out the forward price-earnings [PE] that way.

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There’s seasonality in the numbers though, so be careful – the best thing to do is to use the trailing twelve months. This puts Spur on a PE multiple of 11.2x – not the most demanding valuation for this growth story.

The dividend was 120 cents, but Spur tends to pay a much larger final dividend than the interim dividend. Spur’s dividend yield is 7.7%, meaning its yield is better than what you can likely get from a bank right now — and the business has no shortage of growth as well.

Spur has clearly done a lot of things right.

As we take a little break on Supernatural Stocks from AI and focus on ribs and wings instead, what insights can we glean from the latest interim results?

Insight #1: It’s actually about the pizza, not the wings

We need to talk about Panarottis, which went through a market repositioning in 2022.

In the interim period, seven new Panarottis opened and two closed, so that’s five net new stores to take them to a total of 97 restaurants. That’s a 5.4% increase in the footprint, higher than 1.5% achieved by Spur over the same period, and similar to the 5.7% growth at RocoMamas.

Within the broader Spur group, Doppio Zero had a faster growth rate in the footprint than Panarottis – up 9.7% on a base of 31 stores. Doppio Zero’s turnover growth of 14.9% is also impressive, although this was skewed by two Piza e Vino conversions to Doppio Zero.

Still, the people clearly do want Italian! It really is about the pizza.

And we can especially see that at Panarottis, where turnover growth was an impressive 17.4%. That’s by far the fastest growth rate in the group. For context, Spur grew 7.2%, RocoMamas was up 4.9%, and the excellent Hussar Grill was up 8.0%.

Aside from significant improvements to the look and feel of Panarottis restaurants there’s also the strategy to execute smaller formats in towns in South Africa that wouldn’t necessarily offer enough footfall for the traditional formats. This is taking the brand to customers who would otherwise be buying elsewhere and they’ve been doing a good job of this.

Interestingly, Spur makes less of a song and dance in the interim presentation about the value offerings at Panarottis – certainly compared with how they did it in the full-year results – although it’s clear that the brand is resonating strongly with consumers.

In the previous financial year, they disclosed that the Panarottis Monsterito was over 20% of pizza sales. Go into the restaurants, order a massive pizza to share, buy your drinks and have fun with friends.

That business model can’t be easily replicated by a takeaway model, especially as people live in smaller properties over time that have less space for entertaining. These trends are in Spur’s favour.

So, is it really about the pizza? Or is it about a combination of better store formats and shareable value offerings? Perhaps it’s all of the above.

No matter how well you execute, if you build something that consumers don’t want, you’ll still fail.

I do think the popularity of pizza is playing a role here.

Insight #2: There’s always an ugly duckling

The restaurant game is fickle, which is why restaurant groups tend to build diversified portfolios.

The name of the listed company might be Spur Corporation, but only 47% of the footprint these days is under the Spur brand. Diversifying tends to be sensible in this space.

The perfect example of how things can unfortunately go wrong is John Dory’s, a business that represents 6% of the group’s restaurant footprint.

It’s been around a long time, so this isn’t some weird and risky startup. Things are going from bad to worse. In FY25, revenue was down 5.2% and there was a decrease in the net number of outlets.

In the latest interim period it was even worse – turnover fell 11.7% and they decreased the outlets again, including conversions to other formats like Panarottis. That’s when you know it’s going badly. This is despite a new look for the business that was introduced in 2024.

It just shows that not every rebrand or brand evolution is going to be successful. Things are going really well at Spur, where the brand has gone through an incredible modernisation. But at John Dory’s, they just aren’t getting it right.

Restaurants are tough. Having your finger in a few different pies is advisable, as evidenced by John Dory’s not working.

Insight #3: Emerging market experts do best in emerging markets

Sounds obvious, right? But it’s true.

If you’re going to have your finger in many pies, as suggested, then I would prefer it if those pies were in markets you actually understand.

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Aside from the focus on sit-down restaurants as opposed to the takeaway formats that you’ll find at Famous Brands, one of the other major differences between the two groups is their international expansion strategy – a success factor for Spur in contrast to Famous Brands.

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It may surprise you to learn that Spur has 113 international restaurants as part of the total footprint of 753 restaurants. But instead of trying to compete in Europe, 112 out of the 113 restaurants are in Africa. There’s just one in Australia for some reason.

This shows you that they’ve stuck to their knitting in terms of building an emerging markets restaurant business. We have countless examples on the JSE of management teams who have tried to take emerging market business cultures and win in developed markets.

It doesn’t work – with Famous Brands as one of the worst examples.

And anyway, why would you want to be in Europe right now? Emerging markets are the real growth story in terms of population growth and improving affordability among consumers over time.

If you’re in the consumer game, you want to be in places like Africa over the long term.

Insight #4: Gauteng remains the biggest economic engine

Cape Town gets plenty of attention in the market. Capital is flowing into the province at an incredible rate. But when it comes to consumer businesses, Gauteng is still the underpin of the country’s economy.

Spur is proof of this, with 58% of restaurant turnover being in Gauteng. With a growth rate of 9% in that province, there’s still plenty of opportunity there.

Next up is the Western Cape, contributing 21% to turnover and with growth of 7.4%. Interestingly, the Western Cape growth rate has slowed down from the previous financial year, while Gauteng has remained consistent.

Insight #5: Consumers still want experiences

Spur’s business doesn’t include any quick-service restaurants, like a McDonald’s or Steers. Spur wants you to sit down and enjoy table service rather than order at a counter.

And in delivering this model, they have brands that appeal to middle- and higher-income consumers. Having thoroughly enjoyed a dinner at Hussar Grill recently, I can confirm that they are doing a great job of executing different experiences.

And “experiences” is the word – this is the strategic underpin of the entire group. The core of the business sits in offering in-person experiences to customers.

In my opinion, this is a much better model than being a takeaway-focused operation that is up against a million other names on Uber Eats and other delivery apps.

The apps win in that world, not the brands. There’s no maintainable moat in that space. You either need to bravely put down the capital and have a destination, or you need to resign yourself to the competitive bloodbath of food delivery.

Spur just happens to have the additional clever layer of playparks for kids, giving parents a trusted experience and a way to get a break from “mom, mom, mom … dad, dad, dad” for at least a short while.

And just because a restaurant has a playpark, that doesn’t make it an automatic hit with parents.

I’ve been to restaurants where you either can’t see where the kids are, or there’s nobody on duty, or a personal favourite of mine that I saw recently – a play area next to a massive staircase. Only someone who doesn’t actually have children could possibly have signed off on that stupidity.

At Spur, because the business is built around families and they’ve been doing this for a long time, they get it right in terms of having safe play areas with supervision and visibility.

Trust sells in this market.

Here’s a stat for you from the FY25 results, rather than the interims: 38% of Champions segment members of the Spur loyalty programme have children. This tells you that parents love it. But perhaps even more incredibly, it tells you that plenty of adults are also happy to go to Spur for reasons unrelated to the kiddies menu and the arcade games.

As a final point on experiences, sit-down customers contributed 87% of group turnover in FY25. Mr D and UberEats contributed 6.5% in total. The remaining 6.7% was a hybrid model of people collecting from the restaurants.

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In the interim report, they now combine Mr D, UberEats, and collections in one category, designed to capture consumption off premises, but the percentages look pretty consistent with FY25.

Insight #6: Breakfast isn’t where the money is

In the interim period, breakfast contributed 11% of Spur’s turnover, lunch contributed 51%, while dinner was good for 38%. This is almost perfectly in line with the FY25 figures.

Of course, this is a group view. Different restaurant chains have different strategies. Hussar Grill is focused on dinner, while Doppio Zero is strongest at lunchtime. This doesn’t mean that the chains don’t use specials to try and attract more customers at traditionally quiet times.

In the last annual results, Spur gave the example of Hussar Grill’s lunch special, appealing to value-seeking customers at a time of day when the restaurant isn’t full anyway.

This shows one of the strategies in getting these restaurants to perform even better. Aside from where they are obviously very strong, running specials to bring customers in at a quieter time of day can do wonders for return on investment.

The future

What does Spur need to do next? More of the same, really. They just need to keep executing to high standards, allocating capital properly, and avoiding the temptation to pursue silly deals.

They also ideally need a resolution to the GPS Foods litigation, an overhang on the share price that would be a nasty shock to the numbers if it crystallises.

I do worry a little bit about the approach they’ve taken of not raising a liability at all for this, even though the claimant has made some positive progress with the arbitration.

Spur’s market cap is R3.7 billion, while the claim is for over R230 million. These claims are almost never settled at the full amount, so the likely exposure – if any – is much smaller than that.

Read:
Claim against Spur in dispute with GPS Food increases to R233m
Spur confident of defending multi-million-rand damages claim

Even if the worst happens, it wouldn’t sink the place, but it would leave a bad taste in the mouth of investors – a little bit like that Milky Lane waffle that even my kids didn’t particularly want to eat.

That’s why the next time, I took them to Spur instead.

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