My First FA Purchase: Breadtalk

My first purchase based solely on my Fundamental Analysis, was the stock of Breadtalk. That was after I had put an amount into SPH, and left with little funds.

At that time I lacked confidence in myself. I was afraid of the market. Hence, with my limited funds, I bought a mere 5 lots of Breadtalk at 0.37 (although I could afford a max of 10 at that time). $1850 was the cost. Jan 09 was the month. Breadtalk did went down to 30 cts before coming back up, but I had no money nor confidence to buy more at that time.

As it turns out, Breadtalk's mere 5 lots became one of my most profitable investments. In a period of a year, the total value rose nearly 100%. And today, I brought Breadtalk up again because bonus shares were given (1 for 5) because the management wanted a reflection of how much Breadtalk has grown, and thank shareholders for sticking with it. From my 5 lots, I have now 6 lots of Breadtalk.

In this post, I shall summarize my Fundamental Analysis considerations in Jan 09. In my early attempts at FA, I looked into the NAV, Discounted Cash Flow valuations, business prospects, management and shop visits.


Net Asset Valuations
Breadtalk's NAV isn't that high at the time of purchase. In fact, it's about 21 cts, while I paid a premium of 16 cts to the NAV. But NAV is only part of the considerations... There are intangible assets which are not quantifiable as well into the NAV (or so I thought). These include their recipe for the pork floss bread, and their master franchise licenses they sold to foreigners in the Middle East, etc.


Discounted Cash Flow Valuations
My initial calculations was 50 cts as the minimum and most conservative, and $1 as the maximum, which gives us an average of about 75 cts.

Will not be listing how I made the calculations because it was done too long ago, and the values might have changed substantially by now.


Business Prospects
I like their business prospects. F&B is a moderately defensive business. J.Co Donuts, Toast Box, Ding Tai Fung, Food Republic are good additions to leverage on their F&B business. Breadtalk is expanding in China, and is opening more outlets in Singapore. They moved to producing pastries as well as mooncakes to capitalise on the market here. In addition, they have different product ranges at different places in Singapore to cater to the different demographics of people around their shops. In addition, revenue comes from selling of master franchises overseas.

Oh ya, my family and I liked their signature pork floss breads as well.

Toast Box, Ding Tai Fung and Food Republic appears to be quite profitable as well. I'm not very sure about J.Co Donuts at the moment though. So while Breadtalk sell master franchises to overseas, they buy master franchises from overseas as well for expansion and range.

Finally, Breadtalk successfully secured a franchise to open 100 Carl's Junior branches in China. Shall see how this goes, but I'm moderately positive on this venture.


Management
The owner and his wife are the majority shareholders of the company. And Breadtalk hired a CEO seen in this news article: http://www.asiaone.com/News/Education/Story/A1Story20071226-42505.html

This CEO is extremely well known in Xinmin Sec Sch for having turned the school around from it's underachiever status to a well known school now. That credential alone suggests that this person has strong vision and leadership capabilities. Indeed, Breadtalk has grown a lot more since he became CEO in 2007. I'm positive that the group will grow further under him.


Shop Visits (during the peak hours)
So far, I see quite a number of visitors buying Breadtalk breads of the branches I visited at Compass Point, Wisma Atria, Ang Mo Kio Hub, etc.

Ding Tai Fung at Bishan Junction 8 and Wisma Atria are usually full too.

Toast Box isn't that popular, but there are still constant customers.

Food Republic visited at Vivocity is very crowded.

So from the crowd and customers, I would say their business appears to be roaring...


Those were the reasons I purchased earlier. As the prices have hit new highs, I will wait before considering to enter more. This time round, I guess I might have to average up as more people get aware of this little F&B company.