not vested
BFood dividend boost from control of BStarbucks by ng bei shan
Bfood plans to open at least 23 to 25 Starbucks outlets per year over the next five years.
BY buying out Starbucks Coffee International Inc’s 50% stake in Berjaya Coffee Co Sdn Bhd (BStarbucks) for RM279.5mil, Berjaya Food Bhd (BFood) will be able to have a better control of the cash cow, which may translate into higher dividend payout ahead.
BFood chief executive officer Datuk Francis Lee Kok Chuan tells StarBizWeek in an e-mail reply: “BFood will determine how the cashflow will be utilised instead of having to obtain permission for paying out dividends to BFood from the cash generated in BStarbucks.”
BStarbucks generated cash of close to RM60mil as at financial year ended April 30, 2014 (FY14) and BFood gets to fully decide how to spend the money upon completion of the acquisition, expected in September.
“We have a free hand to run the operations when it is a 50:50 ownership but we cannot simply pay ourselves dividends without getting approval from our partner, Starbucks International. They frown on us for paying out big dividends although cashflow in BStarbucks is very strong,” he adds.
He explains that BStarbucks managed to pay out RM2mil and RM6mil dividends in FY13 and FY14, respectively, and BFood only received half of the amount.
That will change once it owns 100% in BStarbucks.
He says all the dividends it received from BStarbucks were paid out to BFood shareholders as BFood has strong cashflow itself and does not need the monies.
The food and beverage (F&B) group paid out 49% of its earnings in FY13, 58% in FY12 and 42% in FY11.
AmResearch projects higher dividends of 5.3 sen and 6.3 sen in FY15 and FY16 respectively. Notably, dividend yields will be compressed due to the recent spike in its share price.
BFood is also in a better position for other merger and acquisition (M&A) activities due to a stronger cashflow from BStarbucks although it is not looking at other deals currently.
“Any M&As must make sense for BFood shareholders and should be earnings accretive. If a good deal comes along, we will not walk away from it,” Lee says.
Analysts opine that BFood got a sweet deal for buying the 50% stake in BStarbucks at a price-to-earnings (P/E) of 16 times of the latter amidst the booming coffee culture.
On the other hand, Starbucks Corp US is traded at an estimated consensus P/E of 30 times.
AmResearch forecast that BStarbucks will contribute 54% to BFood’s revenue, followed by Kenny Rogers Malaysia at 27%, going forward.
Operating costs unchanged
Operationally, growth plans and investment costs for BStarbucks remain intact.
“There is no change in royalties and franchise fee rates for the next 25 years, which is good for BFood.
“Investment in stores is no different from previously except that now the company is wholly owned by BFood,” Lee says.
New stores, which may come in the form of stand-alone shops and outlets in malls and petrol kiosks, cost RM800,000 to RM1.1mil depending on the size while the investment cost for drive-throughs are higher.
The company plans to open at least 23 to 25 outlets per year over the next five years. It has 173 outlets at present.
Source: The Star