LISTED FRANCHISE'S VALUATION REPORT QUESTIONED
13 May 2014 - A financial commentator has questioned a valuation report on Cooks Global Foods, owners of the Esquires franchise rights overseas.
An article by the deputy editor of Fairfax’s business bureau which was published in the Sunday Star Times at the weekend questioned the value of a recent analysis of Cooks Global Foods’ potential share price. The New Zealand listed company is global franchisor for the Esquires chain.
The analysis was commissioned by Cooks from research firm Edison, which is based in Wellington but part of a London-based group. It suggested that if the company achieved its current goals, it would be valued at 27.5c per share – some 62 percent above its then-current valuation.
The Sunday Star Times article by Tim Hunter says the headline on Cooks’ report to the NZAX ‘appeared to say they were worth 62 per cent more than the current market valuation’ rather than being worth that much only if the current growth plans were successful. The report itself – as highlighted in Franchise New Zealand’s news section – clearly stated that the valuation was on a success basis and was predicated on growth to 580 stores by FY20.
Mr Hunter comments, ‘Having visited an Esquires once, I personally doubt that target will be achieved.’ He then looks at the market in the UK – one of many countries where the Esquires brand is currently expanding – to question the thoroughness of the report and its value to investors.
The article is an opinion piece aimed at encouraging investors to be cautious when the NZX opens its new market for small companies in a few months’ time and to investigate the sources of reports. ‘The combination of small companies and a looser disclosure regime will make NZX's mini-me a riskier place to shop for shares than the main board,’ Mr Hunter writes, using the Edison report as an example to highlight some of the risks he perceives.
The article will come as a disappointment to the Cooks’ board, which has ambitious goals for global growth and has announced a series of acquisitions and new partnerships as it increases control over the brand. In February, Esquires extended its activities in the Middle East with new master franchise agreements for Oman and Quatar.
The company acquired the master franchises for Esquires in Great Britain and Ireland in 2013 and is currently conducting a refurbishment programme throughout the chain as well as tripling operational staff and embarking on an aggressive expansion programme.
Media reports suggest that the UK coffee market is far from saturated, with the largest operator – Costa – still opening three shops per week while Starbucks is facing a consumer backlash over tax issues.
However, the Sunday Star Times article does highlight the greater level of scrutiny and opinion that franchisors can expect when they take their companies public, as we commented in our 2013 article.
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