We just learnt how little money Burger King is making in SA – as its local owner sells cheap

Business Insider SA
News analysis
Burger King
  • Burger King's South African owner has found a buyer for the struggling chain – in which it is selling all of its shares, despite earlier plans to hold on to a smaller stake.
  • The numbers behind the deal show just how much the famous American chain is struggling in South Africa.
  • For its current year Burger King in SA has an ebitda target of R84 million.
  • That means its stores are making on average R76,000 per month – before major expenses such as tax.
  • For more stories go to the Business Insider South Africa homepage.

Burger King's South African franchise holder is calling it quits on the chain, selling its entire stake at a relatively low multiple, in a deal that shows just how much the Burger King brand has struggled in SA.

On Wednesday the JSE-listed Grand Parade Investments announced a plan to sell Burger King South Africa, the company that holds the master franchise agreement for SA, to a fund of Emerging Capital Partners, which manages private equity investments across the African continent.

Grand Parade had previously said it intended to keep a "a non-operational minority interest" in Burger King – but now plans to sell all of its shares, amounting to a little over 95% of the business.

See also: Burger King restaurants keep losing money in South Africa – but a whole lot more are due to open anyway

The sale is based on a complicated calculation that will take into account debt and cash within Burger King South Africa, as well as an "enterprise value" based on its earnings for the year to the end of June 2020.

The value has been set at eight times Burger King's normalised ebitda, or earnings before interest, tax, depreciation, and amortisation, which makes it relatively cheap. Listed South African companies trade at a multiple in the high teens, while a multiple of between five and seven is considered fair for generic trading businesses.

Burger King, with its strong international brand and carefully developed products, had been expected to be a cash generating machine when it launched in 2013.

See also: Burger King now serves bacon in South Africa – but dropped ‘ham’ from the names of burgers ‘to be more respectful’ of halaal clients

But the numbers disclosed by Grand Parade in the calculation of the sale price shows that is is not the case.

In the current financial year, Burger King SA has an ebitda target of at least R84 million, its current owner said. With 92 restaurants currently open, that equates to a little over R900,000 per restaurant – or some R76,000 per restaurant per month for the year.

That R76,000 in earnings is calculated before tax, and does not take into account the depreciation in equipment such as the specialised kitchen gear used by Burger King to grill its patties.

Grand Parade said it had obtained an independent, third-party valuation for Burger King SA, and that the offer it has now accepted "is a reasonable offer and is higher than the independent third party valuation obtained".

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