Select Group

Select Group is one of the leading food service providers in Singapore. It started its food catering business in 1990s and expanded to other F&B businesses in 2000s, such as restaurant chains, fast food, cafeterias, and management services to other F&B operations.

 

I bought the shares last month after it had a dip to 0.36. Yesterday, the management announced its decision to privatize the company and offered the price 0.525. That’s ~45% return in slightly more than 1 month. I just felt so lucky that I bought it last month. If it did not have the dip, I wouldn’t have bought it.

 

Here’s the revenue breakdown for 2014. I don’t have the figure for 2015 yet.
Peach Garden is a chain of Chinese Dining restaurants, which Select bought in 2008. I had several IPO luncheons there.
Hub Services provide management services to several food courts.
 Revenue Breakdown - 2014
Source: Company’s 2014 Annual Report

 

Here are the charts that I created when I was studying the company. 2015 breakdown are not available yet (waiting for the Annual Report), but 2015 achieved revenue of 159.8m (+8.7% yoy), EBIT of 8.5m (+19.7% yoy) and Net income of 7.2m (+20% yoy).
Revenue 2011-2014EBITDA 2011-2014PBT 2011-2014

 

As you can see from the charts above, Select Group has several F&B businesses with different customer base. We get different performance pictures for different business even though all of them are in F&B sector.
Institutional Catering business (managing staff cafeterias) is not able to grow its revenue but manages to increase its operating margin over the years.
Hub Services increased its revenue substantially in 2014 as it managed more food courts. Its margins are also rising over the years.
Quick Service Restaurants (Texas Chicken) is making more losses than profit.
Peach Garden, its biggest business, grows its revenue steadily but with more volatile margin.
Food Catering and Food Retail are growing their revenues but the margins are falling.

 

The main theme that has been running in Singapore’s F&B sector in the past few years is the rising rental cost and labor crunch due to foreign workers hire restriction. New entrants are also always there in F&B sector. Select Group’s financial performance from 2011 to 2015, though not fantastic, has been quite well compared to its peers. Its diverse F&B businesses provide different streams of income with overall ROE above 20% and total revenue and income growing.

 

The low P/E ratio (8.5x) is misleading because the company received lots of government grant. In 2014, it received a total of 2.3m government grant while the net profit was 6m. I don’t have the government grant figure for 2015, but for first half of 2015, the company reported that the government grant receipt increased by 0.7m. If we subtract the government grant from the net income, which we should, when calculating the financial ratios, then the P/E will rise to around 15x, which doesn’t seem so attractive.

 

When I studied this company in September 2015, the share price was 0.435, and I decided to wait. When it dipped to 0.36 in February 2016, I saw some margin of safety in that price and decided to buy. Luckily, there was enough volume to fill my small order. This has been a very illiquid stocks.

 

I am still waiting for its 2015 annual report for more details of its operations, capex, and new office buildings, but the news broke that it’s being taken private. After it’s privatized, I won’t be able to follow this company anymore. So, I just sold my position yesterday at their offer price of 0.525.  Maybe one day, the private equity consortium that bought this company will list it again.
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