Why are Cooks Global Foods share price under watch zone

Summary

  • Despite the pandemic crisis, the Cooks Global Foods Limited went ahead with its plans to acquire a new coffee house chain.
  • Cooks reported positive operating income from continuing business as the total group revenue increased by 1.7% to NZ$4 million.
  • As the markets recover from the Covid-19 impact, the company looks forward to seeing the momentum return in its business.

International coffee franchiser Cooks Global Foods Limited (NZX:CGF) is primarily focusing on the operation of franchised cafés in the United Kingdom, Ireland & Europe. It also imparts support to master franchise partners in the Middle East, Pakistan, Canada & Indonesia.

Aligned with its focus, recently, the company announced the sale of its Grounded coffee brands and Scarborough Fair tea to Toasted Coffee Roasters, with an intention to divest non-core operations. Cooks believes that the combination of Scarborough Fair & Grounded brands with Toasted Coffee Roasters philosophy and commitment will yield an exciting and successful new chapter for its high quality, ethical brands with dedicated customers.

However, Cooks also released a statement saying it is going ahead with acquisition plans and this latest news caught the investors' attention

Also read: NZ Hospitality Sector- 3 Stocks to Look at Considering Alert Level 1

Acquisition of a new coffee house chain in the UK

Cooks executive chair Keith Jackson said in the statement released that the coming year will have huge impacts of Covid-19 outbreak and its related lockdowns on its businesses. But despite this crisis, the Group went ahead with its plans to acquire a new coffee house chain in the UK. Its June month’s purchase of the Triple Two chain took place at an initial payment of NZ$7.5 million, adding 13 stores to Cooks' existing 44 store UK market.

Jackson said that the timing of COVID-19 pandemic is unfortunate, and the company cannot accurately determine the impact on its businesses. He also said that the company believes the business model is sound with the focus on core business areas, and also it is well placed to emerge from the outbreak. Its franchise network is positioning the company well for the recovery.

Also read: Things Restaurant Businesses Need to Follow in A Post-COVID-19 Era

Preliminary results show improved business growth

As disclosed in CGF’s preliminary results for the 12 months to March 31 2020, Cooks reported positive operating income from continuing business as the total group revenue increased by 1.7% to NZ$4 million. It stated that the operating income before depreciation, amortisation & finance charges is NZ$1.1 million in profit compared to a prior-year loss of NZ$2.3 million.

Cook’s operating profit from continuing operations after tax improved to NZ$0.4 million from the net loss of NZ$2.6 million last year, reflecting restructuring of the Group’s loss-making business units. The business was hit by the Covid-19 outbreak in all markets from mid-March that resulted in the declining revenue but the government support packages mitigated its full impact. The new stores are showing low growth as openings have been deferred due to the lockdowns mandated by various governments in order to control the virus spread.

A silver lining amid the health crisis is that even though there are delays in the opening of new stores, Cooks reported no closures of existing stores or cancellation from opening plans of any new stores throughout its global network.

Also read: Restaurant Association of New Zealand Asks for Contactless Delivery at Alert Level 4

Cooks reported revenue from continuing operations at NZ$4.0 million, which was 1.7% ahead of last year’s comparative numbers. The Group’s total revenue for the 12 months rose 20.7% to NZ$7.2 million as the company saw the full-year impact of the short term holding of its three stores in the UK contributing to the sales value growth. These stores, along with the Middle East operations and the New Zealand FMCG operations are determined to be non-core, and the stores have been or are being sold as part of the drive to improve cash profitability.

The Group reported its borrowings also decreased substantially to NZ$5.5 million from NZ$7.0 million at the same time a year ago.

The major markets for CGF are in the UK and Ireland. After about five to six months from coronavirus pandemic stalling all the markets, these countries are slowly emerging from its adverse effects. For Cook’s stores, the ease of lockdown restrictions means hope for revival. Very few stores were open for takeaway coffee and food in these markets for the first quarter. As the UK recovers from the Covid-19 jolt, the company looks forward to seeing the momentum return.

With the merger of Esquires and Triple Two brands, the company says it is well placed to deliver strong and sustainable results. CGF created significant momentum in the second half of FY20, which showed its benefits in scale and profitability.

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Stock performance:

Cooks also believes that it does not expect to see a return to a more normal trading situation until the second half of FY21. Cooks Global Foods Limited (NZX:CGF) shares last traded at NZ$0.054 on August 20 and was down by 1.82%.

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