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ABR Holdings: Hidden Gem Or Unpolished Stone?
Corporate Digest | 21 October 2010
Related stocks:
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By: Andy Chiok
Articles (1) Profile

There are a host of valuation methods available in the marketplace. But is there one for a company that is very heavy on intangible assets? How is the market assessing the ‘true worth’ of these companies? Andy Chiok finds out.

How does one run a ‘House of Brands’? How are such companies valued when all they own are essentially intangible assets? Other than selling off these assets and thus crystallizing their values, how should these be ‘marked to market’?

On the other hand, the very nature of these companies makes them unique as they do not have to grapple with the management of accounts receivables/payables and inventories, ‘Make or Buy’ decisions and production processes, particularly when market demand is found wanting.

In the second of our ‘Travelling Light’ series, the spotlight is on ABR Holdings Ltd. Best known for the Swensen’s chain of restaurants, ABR is also managing a portfolio of brands including Gloria Jean’s Coffees, The Cocoa Tree, and Oishi Japanese Pizza. Other than restaurants, it also has its marks in the marketing and distribution of premier chocolates and wines. Profit before tax has been SGD17.7 million in FY2009, an increase of 9% over the previous year. As a “premier franchising company offering entrepreneurs the opportunity to become owner/operator of renowned brands”, ABR Holdings is the perfect example of a company without the excess baggage. It is also a company very dependent on domestic demand in areas where its restaurants or outlets are located.

The question is: Is the company a gem waiting to be discovered or one which potential has yet to be fully developed?

Modern Warfare: Blitzkrieg!

Managing brands is not exactly the same as selling a product or offering a service. The rules of the game change when everything is psychological. Take Yum! Restaurants, Inc. for instance. According to David Novak, Chairman & Chief Executive Officer, it is all about “dynamic and vibrant brands everywhere.” This, coupled with an aggressiveness to be seen in areas where it counts is obvious.

This, obviously, requires much time and deep pockets. Pepsico, prior to its spinoff, has invested nearly 40 years and billions of dollars to established the global network we see today. One may argue that this is an argument between apples and oranges. Is it really? To be sure, other than being seen and heard, a large part of the strategy lies in the development of massive, under-penetrated markets and an aggressive franchisee-led growth.

That is the difference!

Perhaps the biggest intangible asset other than brands is the brain driving this growth…

Valuation

How does one value perception? Other than selling off the brand (as in the case of the Pepsico spin-off) and attaching a monetary value to it, how does one measure something that is nebulous and often very confused? Book value, discounted cash flow, earnings multiples or worse yet, tangible asset method all breaks down.

“It is difficult to assess the market value of a company of intangible assets as different valuation methods & assumptions will result in different results” says Stanley Sim, a non-practicing Certified Public Accountant who is currently a manager at a financial planning/wealth management firm.” Unless these intangibles (brands) are realized through the sale to a 3rd party, it is very hard to estimate the value that the market is attaching to them. Brand audits might help but these tools are basically measures of awareness and brand equity which might or might not reflect their market value,” he added.

Let’s pause for a while and take a look at how such companies are valued in the US. According to Reuters, Yum! Restaurant is a “quick service restaurant” characterized by relatively cheap prices. Revenue growth should, therefore, continue to remain steady, but positive since fast food is relatively
inelastic or non-cyclical even in times of economic uncertainty.

In a nutshell, the company is – justifiably or otherwise – valued on revenue growth. Can the same be applied here?

Critical Mass

A very important variable in the success equation is critical mass. At last count, Yum! Restaurant is operating 34,000 units in more than 100 countries and territories. Other than a massive domestic market, it is very aggressive in profitable France and an even more profitable China. ABR, on the other hand, clocks 20 restaurants for their flagship (Swensen’s) and has stamped its footprints in Brunei and Malaysia as well. Its Focus Network Agencies’ distribution and marketing reaches more than 20 countries in the region.

Are we talking about the same critical mass? If not, why? ABR could not be reached for comments.

Sum of Parts

It is very obvious that there are ‘hidden’ values in ABR. One argument is that if the sum of parts is larger than the whole, then it makes more sense to just “chop it up and sell it”, a management tactic very popular in the US during the 80′s. Let’s be clear that the objective of every shareholder/owner is to derive a return superior to the ‘next available alternative’. The duty of management is to achieve that goal. If the only way to unlock shareholders’ value is to chop up the company, then I think shareholders must seriously consider that alternative.

Currently a communications specialist, Andy has also spent 15 years in banking & finance dealing with derivatives, FX, Equities, and Wealth Management. He is a Certified Financial Planner (CFP) and holds an MBA from South Australia. Andrew also has a professional diploma in banking & finance from the Institute of Banking & Finance.

Please click here for more information about this author.

ABR Hldgs  -- -- --   
Business: Food & beverage group, which holds several franchise including Swensen's & Season cafe. [FY17 Geographical] Singapore (86.8%), Malaysia (13.1%), Rest of Asia (0.1%).

Insight: May-18, 1Q18 revenue increased by 19% due mainly t... Read More


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