Taste share price falls on poor earnings forecast

Taste Holdings' share price fell on Wednesday after it announced it expects to make losses for the half-year ended August 31, 2019.

Taste Holdings, which used to own coffee franchise Starbucks and other food franchises Maxis and Fish & Chips, released a trading statement for the six months to end August on Wednesday.

The company expects losses per share to be between 5.3c to 5.5c, about 33% to 35% better than the loss per share of 8.2c for the same period last year. Headline losses per share were expected to be between 5.3c and 5.7c, about a 29% to 34% improvement on the loss of 8c per share recorded last year, the statement said.

Taste's share price, which opened at 4c on Wednesday, fell to as low as 3c during the day's session. The market value of the company stands at R66.65m.

The company's shares had traded as high as R5.25 in 2015.

The trading update comes just over a week after the group announced CEO Dylan Pienaar was stepping down as CEO.  

"Given the revision in Taste's strategy to become a Luxury Goods Business and having successfully navigated the sale and transition of Starbucks, Maxi's and The Fish & Chip Co, Dylan Pienaar has decided to step down as the Group CEO, with effect from 3 December 2019," the group said in a notice to shareholders issued on December 3, 2019.

Current head of Taste Luxury Goods Division, Duncan Crosson, has taken over as CEO.

Commenting on the performance of the share price, independent analyst from Small Talk Daily Research Anthony Clark told Fin24 that the company has poor prospects, having gone through restructuring by disposing of its fast food interests.

'You don't even make money off the box'

Starbucks was sold for R7m, and the buyer will have to put down as much as R350m to get the company to break even. Furthermore, the amounts for which Maxi's and Fish & Chips were sold were undisclosed, suggesting it was below the threshold required by the JSE. Taste is also struggling to find a buyer for Domino's Pizza.

"The pizza market is cut-throat, competitive and chaotic. You basically have to give the product away - no one wants to buy it, you don't even make money off the box," Clark said. 

Taste raised over R1bn in equity to get its food strategy right; Clark labelled this a "miserable failure". He said it was unlikely investors would put more money in the company, in terms of an equity raise.

Currently the group only has only interests in jewellery, as it owns brands Arthur Kaplan, NWJ and World's Finest Watches. Taste generally makes most of its revenue in the second half of the year, over the festive period.

According to Clark, in an economy when consumers are pressured, jewellery sales may suffer.

He suggested Taste be delisted. "The company, as I see it, has no reason to exist. At a current share price of around 4c-5c, I do not believe any institutional investor will invest in this company again. It is a microcap, only investing in jewelry. It has a very weak future going forward, strategically in retail," he argued.

In a shareholder notice issued on November 1, the group said its board had decided it would be in the best interests of the company and all stakeholders if it exited the food business and became a focused luxury retail group. This was after it was determined that the capital investment required to expand Starbucks and Domino's could not be secured, "given the current structure of the business and exitsing market conditions".

In an interview with Finweek earlier in 2019, Taste non-executive director Tyrone Moodley said it expected profitability to return after three years.

Taste will publish its half-year results by December 13, 2019.

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